Discretionary dividend access or dividend only shares (DOS) were historically not a standard feature of the VL constitution.
Based on adviser feedback however a DOS, with the rights set out at the end of this FAQ entry will be included in all constitutions from 1 July 2018.
We recommend that specialist tax advice about the appropriateness of a DOS in the context of each specific factual matrix should be obtained. This is because there are a range of often complex tax (for example, value shifting, the debt/equity regime and anti-avoidance provisions) and Corporations Act ramifications of utilising DOS’s.
The Australian Tax Office (ATO) has made numerous public statements outlining concerns with allotting and paying dividends to the holder of a DOS. We are also aware of high audit activity by the ATO for accounting practices which may have historically assisted clients with implementing a DOS arrangement.
The risks of ATO focus and potential audit have heighten in the area of DOS’s in recent years due to increasingly sophisticated data matching between the ATO and the ASIC.
View can provide a proposed scope of work and fixed pricing to assist, where requested.
The rights of the H class DOS are as follows:
1.1 Holders of H shares have the following rights and are also subject to the following restrictions:
(a) regardless of any provision contained in this document, the right to receive dividends as paid from time to time by and at the sole discretion of the Directors determined to be payable only to the holders of H shares, with the discretion independent of the exercise of discretion in relation to any other class of shares;
(b) H shares do not have the right:
(i) to any entitlement to, interest in, or right in respect of any dividend that the Directors determine to be payable or that may be declared from time to time in respect of a H share until that dividend is actually paid to the holder of the H share, or their nominee;
(ii) to receive notice of, attend and vote at a General Meeting of the Company;
(iii) in a winding up or reduction of capital of the Company to repayment of the capital paid up on that share; or
(iv) in a winding up or reduction of capital of the Company to participate in the distribution of the surplus assets of the Company;
(c) H shares are redeemable at the option of the holder or the Company;
(d) the Company must give at least five Business Days prior written notice to the holder of a H share of the Directors’ intention to redeem the H share;
(e) the holder of a H share must give at least 20 Business Days prior written notice to the Company of their intention to have their H share redeemed by the Company; and
(f) where a H share is redeemed, the amount payable by the Company on redemption will be any amount less than the issue price determined at the sole discretion of the Directors.