MIEA v Guo

This appeal concerns the nature of a dividend paid by the ANZ on non-redeemable, non-cumulative convertible preference shares. The issue is whether the dividend is a "debt dividend" under s46D of the Income Tax Assessment Act 1936 (Cth) and therefore not eligible for the rebate available under s46. The Court held that the dividend was not a debt dividend because the relationship between the ANZ and the shareholders did not exhibit the characteristics of a borrower and lender relationship. Accordingly, the appeal was dismissed with costs.The Court noted that the dividend was calculated as a fixed percentage of the sum subscribed for the shares, which corresponded with the calculation of interest. However, the relationship between the ANZ and the shareholder did not exhibit the characteristics of a borrower and lender relationship. The ANZ obtained capital from subscribers to the issue of shares, but there was no obligation to pay a money sum to the shareholder. The sum subscribed was not paid on terms that the shares were to be redeemed and the sum paid for the shares by the subscriber returned to the shareholder. Conversion of the shares to ordinary shares did not alter the position of a holder of the shares. Upon conversion, the shareholder remained a subscriber to the capital of the ANZ and the ANZ had no obligation to pay a money sum to the shareholder. The sum subscribed was to be retained as capital by the ANZ. The ability of the shareholders to recoup the issue price by a sale of the ordinary shares could not transform the relationship between those shareholders and ANZ into that of creditor and debtor, or something equivalent thereto.