Dividend payment
Q. The constitution of an unlisted public company provides that the directors have the power to determine that a dividend is payable and to determine the timing for payment and the method of payment. The directors of a particular company propose to adopt a policy of paying dividends only by electronic funds transfer to the shareholders’ accounts rather than sending cheques.
Are the directors permitted to do this? If so, what is the situation if some shareholders decline to provide bank account information?
A. On the facts, it would appear that, if the constitution of the company confers on the directors such wide powers as to the method of payment of dividends, then there will be no breach of the law by requiring payments by EFT. Moreover, the Corporations Act 2001 (Cth) does not seem to prevent the making of dividend payments only by EFT (see, in particular, Pt 2H.5, ss 254SA to 254W).
However, it is unclear whether the individual shareholders who do not provide their EFT details, are disadvantaged and thus fail to receive dividends, could bring a claim for oppression on the minority (or some other legal action) (see s 232, for example). In such a case, to prevent litigation, the company may have no choice but to pay those individual shareholders by cheque.
Topic: Corporations law
Delegations of authority
Q. The board I sit on is currently assessing delegations of authority. Specifically, we want to know the typical spending amount a CEO would have at his/her discretion before needing board approval. The company is an incorporated not-for-profit and has over $6 million annual turnover.
A. This is entirely discretionary and there are no set benchmarks on the issue. It is best if the expenses of the company are analysed and the board carefully considers the possible spending amount before committing to the matter.
Topic: Tax
Deduction for property holding costs
Q. We have a client who has purchased a residential vacant block of land within an SMSF. The members were planning on building a house on the property to lease out. They have now changed their minds and are looking at selling the block of land.
Can they claim the expenses as a deduction within the SMSF in relation to the purchase of the property (ie penalty interest, rates) or does this get added to the cost base?
A. The general rules of deductibility apply.
TR 2004/4 was issued after Steele’s case in 1999 and sets them out. In that case, interest was deductible as Mrs Steele had commenced her attempts to develop the land. Your client’s situation will depend on whether they merely had an intention to build and lease, or whether they took positive steps to try to realise this outcome before changing their intended course of action.
If no deduction is available then the expenses would be included in the third element of the land’s cost base.
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