A private company can issue a special kind of share, called a dividend access share (“DAS”).  Broadly speaking, a DAS is a share that entitles its holder to only very limited rights.  The directors of a company may resolve to pay dividends to DAS holders; otherwise a DAS holder has no right to dividends, and also has no voting rights or rights to surplus assets when the company is wound up.

The existence of a DAS can arguably give rise to various tax and non-tax benefits.  However, it can also cause tax ‘headaches’ in some situations.  In particular, it has generally been thought that the existence of a DAS might prevent a company and/or its shareholders from being able to access to the highly valuable “CGT small business concessions”.

Significantly, in a recent case concerning the sale of shares in a private company that had a DAS on issue, the Administrative Appeals Tribunal (“AAT”) held that the existence of the DAS did not prevent the vendor from accessing the CGT small business concessions.  (As a result, the vendor’s $4.3m gain on sale of the shares was tax-free.)

It is likely that the ATO will not be pleased with the outcome of this case; and will decide to appeal the decision to the Federal Court.

In the meantime, in light of this recent case, any taxpayer who has sold a business or business assets and was denied the benefit of the CGT small business concessions due to the existence of a DAS might want to seek advice about the possibility of challenging their tax bill in respect of the sale.