A deemed dividend may arise when you purchase an asset through your company and it's used for private purposes by a shareholder or their associate. Both the company and recipient of the dividend must record these on their tax returns.
Case study
A director who operated a consulting business claimed they personally competed in a racing network. The company purchased vehicles and claimed over a million dollars in deductions for racing activities over several financial years. They stated the vehicles and activities were used for advertising and to further their business income.
This behaviour attracted the ATO’s attention and they conducted a review of the business. The review found:
- there were some vehicle and racing expenses associated with running the business; however, the scale of these expenses was disproportionate in comparison to business income
- the company’s business plan, client base and use of the vehicles were not sufficient to justify that the racing costs were an expense incurred to build a client base
- the vehicles were owned by the company but stored and used privately by the director.
The ATO determined the company was claiming deductions for a private purpose and not for the purpose of furthering the consulting business.
As a result, the deductions claimed for racing expenses were disallowed and the company had to pay the tax shortfall, as well as interest and penalties.
The private use of the racing vehicles was treated as a deemed dividend on the basis that the company had provided assets for the personal benefit of the director, who was a shareholder. The director was required to include the deemed dividend in their assessable income. Their personal tax returns were amended and they had to pay the tax shortfall, interest and penalties.
Record keeping
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Record keeping overview |
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Tasks and tips |
6 mins | |||||||||||||
Starting your business records |
2 mins | |||||||||||||
Digital record keeping |
5 mins | |||||||||||||
Manual or paper record keeping |
2 mins | |||||||||||||
Banking records |
2 mins | |||||||||||||
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Income records |
3 mins | |||||||||||||
Accounting for private use of assets |
9 mins | |||||||||||||
Motor vehicle deductions records |
2 mins | |||||||||||||
Home-based business deductions records |
1 mins | |||||||||||||
Other deductions records |
1 mins | |||||||||||||
Stock and asset records |
5 mins | |||||||||||||
GST records |
1 mins | |||||||||||||
Employee records |
7 mins | |||||||||||||
Car fringe benefits records |
1 mins | |||||||||||||
Expense payment FBT records |
2 mins | |||||||||||||
Contractor records |
2 mins | |||||||||||||
Sharing economy records |
1 mins | |||||||||||||
Cryptocurrency records |
1 mins | |||||||||||||
Records for other taxes |
5 mins | |||||||||||||
Sole trader structure records |
4 mins | |||||||||||||
Partnership structure records |
3 mins | |||||||||||||
Company structure records |
3 mins | |||||||||||||
Trust structure records |
1 mins | |||||||||||||
Changing your business structure records |
1 mins | |||||||||||||
Selling or closing your business records |
2 mins | |||||||||||||
Related courses |
1 mins | |||||||||||||
Course Feedback |
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