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Company Dividend Payments

Company Tax - A Grade Tax

Changes to Rules Governing Company Dividend Payments are now in Force

Are you? - A company director considering paying dividends?
 
At a glance:  - The Government has made amendments to the Corporations Act to alter the conditions under which dividend payments can be made.
 
You should:  - Consider whether the changes will have an effect on your company's dividend policy.
- Contact us if you require any clarification or advice. 
 

Under the original rules governing company dividends under the Corporations Act, companies were only allowed to pay dividends out of profits.

A recent amendment has effectively abolished this concept and replaced it with a more comprehensive assets test.

As a result, companies can now pay dividends even if there are no profits, provided the following tests have been satisfied.

The company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and 
The payment of the dividend is fair and reasonable to the company's shareholders as a whole; and
The payment of the dividend would not materially prejudice the company's ability to pay its creditors.

Private companies can generally choose to use their own accounting records to determine the assets and liabilities, while public companies must calculate their assets and liabilities according to relevant accounting standards.

For more information on the change to dividend policy under the Corporations Act, visit the ASIC website at www.asic.gov.au.

Please contact A Grade Tax Penrith on (02) 4731-1405 with your specifice tax accounting needs.