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CD 40: Adjustment if dividend recovered by company
or “How tax records are adjusted when a company recovers a dividend”
You could also call this:

“How to handle tax when you repay money that was once treated as a dividend”

If a company lets you off from paying money you owe them, it’s usually treated as a dividend. But if you later pay that money back to the company, this rule makes sure the dividend is ignored for tax purposes. The same thing happens if you’re a shareholder in a close company and you thought some spending was just for the company’s benefit, but it turned out to be a dividend. If you pay that money back, the dividend is also ignored.

When you pay the money back, you need to tell the tax department. They will then change your tax assessment and give you back any extra tax you paid because of the dividend.

The tax department will give you a refund even if it doesn’t fit with some other refund rules. But all the other tax rules still apply.

This rule also works for some old loans that were treated as dividends before 1 April 1992. If you pay back one of those loans, it’s treated the same as paying back a more recent dividend.

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Next up: CD 42: Adjustment if additional consideration paid

or “How to handle tax on dividends when extra money is paid or received after a deal”
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Part C Income
Income from equity

CD 41Adjustment if amount repaid later

  1. If the release by a company of a shareholder’s obligation to pay money to the company has been treated as a dividend and the released amount is later repaid to the company, this section applies to the extent necessary to ensure that—

  2. the dividend is disregarded for the purposes of this Act; and
    1. the resulting refunds are made.

      1. If any expenditure of a close company that shareholders in the company believed on reasonable grounds was only for the benefit of the company is nevertheless a dividend and the expenditure is later repaid to the company, this section applies to the extent necessary to ensure that—

      2. the dividend is disregarded for the purposes of this Act; and
        1. the resulting refunds are made.

          1. Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the repayment.

          2. If the Commissioner is given notice of the repayment, the Commissioner must refund any relevant tax of the shareholder.

          3. The refund is made despite sections RM 2 to RM 5 (which relate to refunds of excess tax), but subject to the other provisions of this Act.

          4. Subsection (1) also applies to the repayment of an amount treated as a dividend under section 4(1)(b) of the Income Tax Act 1976 (as it applied before 1 April 1992 to give the Commissioner a discretion to treat loans as dividends), as if the amount repaid were a released amount that is repaid.

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          Notes
          • Section CD 41(5) heading: amended (with effect on 1 April 2013), on , by section 10(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
          • Section CD 41(5): amended (with effect on 1 April 2013), on , by section 10(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).