Section 109 — Income Tax Assessment Act 1936: Excessive payments to shareholders, directors and associates deemed to be dividends

(1) If a private company pays or credits to an associated person an amount (in this subsection called the excessive amount) that is, or purports to be: (a) remuneration for services rendered by the associated person; or (b) an allowance, gratuity or compensation in consequence of the retirement of the associated person from an office or employment held by the associated person in the company, or upon the termination of any such office or employment; so much (if any) of the excessive amount as exceeds an amount that, in the opinion of the Commissioner, is reasonable: (c) is not an allowable deduction; and (d) shall, for the purposes of this Act other than Division 11A of Part III, be deemed to be a dividend paid by the company: (i) to the associated person as a shareholder in the company; (ii) out of profits derived by the company; and (iii) on the last day of the year of income of the company in which the excessive payment or credit is made. Note: This section does not apply to an amount if the amount is paid to a CGT concession stakeholder under subsection 152-325(1) of the Income Tax Assessment Act 1997 (see subsection 152-325(11)). (2) For the purposes of this section: (a) a transfer of property shall be deemed to be the payment of an amount equal to the value of the property; and (b) a reference to an associated person, in relation to a company, is a reference to: (i) a person who is, or has been, a shareholder in, or director of, the company; or (ii) a person who is an associate, within the meaning of section 318, of a person who is, or has been, a shareholder in, or director of, the company.