• Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 23/01/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Keat Kwan

Keat Kwan
Director, Tax

+61 2 9335 8189

What could s258F share capital reductions mean for dividends? 

by Keat Kwan, Corporate Tax Specialist

With the recognition of impairment charges increasing in the current economic environment, a company which has implemented or is contemplating a share capital reduction under Section 258F of the Corporations Act 2001 to recognise a consequential permanent loss of share capital should consider the potential consequences for its ability to pay franked dividends or dividends attaching Conduit Foreign Income (CFI).

By way of example, the relevant accounting entries may be as follows:


Dr Retained profits (impairment)


     Cr Carrying value of asset


To record the impairment charge


Dr Share capital


     Cr Retained profits


To record 258F capital reduction


The share capital reduction results in the company maintaining the balance of its retained profits or reducing its accumulated losses.


If the company decides to pay a dividend out of retained profits after a share capital reduction, there will be a question of whether the company is able to attach franking credits or CFI to that dividend. While there may be alternative technical views, companies need to show caution as there is a risk that the dividend is indirectly sourced from the company’s share capital account and consequently, an unfrankable dividend.


On the upside, to the extent the company generates current year profits in the future, the company should be in a position to pay franked or CFI dividends out of those current year profits so long as the appropriate documentation is maintained in accordance with existing ATO guidance.


Please contact your KPMG corporate tax specialist if you would like to discuss further.


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