In regard to value shifting and notifying the ATO
Scenario:
My company issued a dividend access share for the existing shareholders in proportion to their ordinary shareholdings in the past, but forgot to declare it to the ATO. The shares have discretionary rights to dividends but no rights to voting and no entitlement to surplus assets on the winding up of the company. How to notify the ATO? Is it under the company’s tax returns or the shareholders’ tax returns? When does issuing a dividend access share attract direct value shifting? Is it because the dividend access share was not declared in the past? Any consequences of the direct value shifting rule and what is the impact on the company? How should the problem be rectified?
Explanation:
The application of the direct value shifting provisions may result in the existing shareholders of the company having to adjust the cost base of their shares as a result of the issuance of a new class of shares (ITAA 1997 Div 725, see in particular s725-250). This is because the value of the existing shares may fall due to the issuance of the new class of shares by the company. There is no need to notify the ATO if the only thing that results from the application of the direct value shifting provisions is a readjustment to the cost base of the shares of the existing shareholders. Moreover, there is no need to make any changes to the shareholders’ tax return. All that is required is to determine the cost base of the shares after the direct value shift. Also, the direct value shifting provisions will have no impact on the company’s tax position. Thus the company’s tax return should not be affected by the application of the direct value shifting provisions.