Tax Bites

Pre-sale dividends can waste capital losses

23rd September 2014

  • A pre-sale dividend is assessable income and can also be included in the capital proceeds on the disposal of shares where, in broad terms, the payment of the dividend is part and parcel of the share sale (e.g. where the sale is conditional on the pre-sale dividend being paid).
  • This shouldn’t affect the calculation of a capital gain on the sale of the shares as the anti-overlap provision should reduce the capital gain by the amount of the dividend.
  • However, it can affect the calculation of a capital loss.
  • This is because the anti-overlap provision only applies to reduce a capital gain – it does not apply to increase a capital loss.
  • So a pre-sale dividend can result in a wastage of capital losses that would otherwise arise from the sale of the shares.
  • If this might be an issue in relation to a proposed sale, you should consider whether the pre-sale dividend can be structured so that it is not included as capital proceeds (therefore not wasting capital losses).
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Tax Bites are general in nature and are not a substitute for specific advice. They are the opinion of Tax Advisory Specialists, and the ATO or the Courts may take a different view. They are not updated for changes in the law or the interpretation of the law since publication.

 

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