Changes to paying dividends

The Corporations Amendment (Corporate Reporting Reform) Bill 2010 was introduced on 26 May 2010 to repeal the profit test and replace it with a more flexible requirement. The amendment allows companies to pay dividends if:

•     the company’s assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for payment of the dividend;

•     it is fair and reasonable to the company’s shareholders as a whole; and

•     it does not materially prejudice the company’s ability to pay its creditors. Where the payment results in the company becoming insolvent, it will clearly prejudice the company’s ability to pay creditors.

The Bill, once enacted, will be effective from the date of royal assent.

Henry tax review to examine company tax reduction

In a recent speech, Dr Ken Henry discussed some progress of the review into the tax system. Some of the points he raised included:
• the review panel needs to seriously consider the merits of a reduction in the company tax rate
• Australia and New Zealand are now the only two countries in the OECD that maintain dividend imputation systems, though most OECD countries provide some form of shareholder relief, such as through a lower tax rate on dividends or a uniform credit. Dr Henry said, however, that he thought the time had not yet come ‘for dividend imputation to be abandoned’
• the trans-Tasman mutual recognition of imputation credits will be considered by the review panel

Perspectives on company tax