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GB 36: Reconstruction of imputation arrangements to obtain tax advantage
or “Government can stop tax avoidance through profit-sharing manipulation”
You could also call this:

“Rules for special dividend payment arrangements between companies”

This law is about special arrangements for paying dividends. It applies when a company and one of its shareholders make a plan. The plan is meant to let another company pay a dividend to certain people.

The people who can get the dividend are:

  • The shareholder
  • If the shareholder is a trustee, then a beneficiary of the trust
  • Someone connected to the shareholder
  • Someone connected to a beneficiary of the trust

The plan might involve these people buying shares in the other company, or getting the dividend in an indirect way.

Even though another company is paying the dividend, the law treats it as if the first company paid it.

If the other company attaches a tax credit to the dividend:

  • The person getting the dividend can’t count this credit as part of the dividend they received
  • They can’t use this credit for tax purposes under section LE 1
  • The first company has to record this credit as a debt under section OB 30

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Next up: GB 38: When sections GB 35 to GB 37 apply to consolidated groups

or “Rules for tax avoidance and non-market transactions in consolidated groups”
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Part G Avoidance and non-market transactions
Avoidance: specific

GB 37Arrangements for payment of dividend by other companies

  1. This section applies when—

  2. an arrangement is entered into in relation to a company (the first company) and a shareholder in the first company; and
    1. the arrangement has a purpose of allowing a dividend to be paid by another company to any of the following parties (the payee):
      1. the shareholder:
        1. if the shareholder is a trustee in relation to the shareholding, a beneficiary of the trust:
          1. an associated person of the shareholder:
            1. an associated person of a beneficiary of the trust.

            2. The arrangement may include—

            3. the payee acquiring shares in the other company:
              1. a form of indirect payment of a dividend from the other company.

                1. For the purposes of the imputation rules, the dividend is treated as if it were paid by the first company.

                2. Any imputation credit attached to the dividend paid by the other company—

                3. is not included in the amount of the dividend derived by the payee; and
                  1. is not treated as an imputation credit for the purposes of section LE 1 (Tax credits for imputation credits); and
                    1. is a debit under section OB 30 (ICA payment of dividend) of the first company.

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