The AAT has confirmed that a special dividend paid by BHP was assessable in the taxpayer’s hands. The taxpayer was self-represented and a shareholder in BHP Group Limited. Following the sale of some of its onshore US assets and an off-market share buy-back, BHP decided to pay a special dividend, representing the residual US$5.2 billion net proceeds from the sale of those US assets not returned via the buy-back. The taxpayer, who had not participated in the share buy-back, received a special dividend of almost $19,720 and a related franking credit of $8,451. The issue was whether those amounts should be included in the taxpayer’s assessable income.
The AAT firstly rejected the taxpayer’s contention that the special dividend and franking credit should be treated as a return of capital (if so, they would be exempt from CGT given his BHP holdings were pre-CGT assets).
The AAT then concluded that the special dividend met the definition of “dividend” in s 6(1)(a) of the ITAA 1936 and, since it was sourced from BHP’s current year and retained earnings following the asset sale and share buy-back, it was paid out of BHP’s profits for the purposes of s 44(1)(a) of the ITAA 1936. Accordingly, the special dividend was assessable income in the taxpayer’s hands.
(Douglas and FCT [2022] AATA 2056, AAT, Grigg SM, 30 June 2022.) [LTN 125, 5/7/22]
[Tax Month – July 2022 – Previous Month, 5.7.22]