Dividend Access Shares


  • What are Dividend Access Shares? 
  • Documentation 
  • Tax Implications 
  • Practical Applications 
  • Risks and Limitations 
  • Dividend Access Shares vs Other Shares 

What are Dividend Access Shares? 

Dividend Access Shares are a corporate financial management tool, enabling selective dividend distribution without corresponding voting rights. They are issued under specific conditions which are typically defined in the company’s shareholder agreement or its constitution. Dividend Access Shares are sometimes referred to as Discretionary Shares, as they enable discretionary payments of dividends to shareholders of these shares.

These shares are not meant to confer an ownership interest in the usual sense but rather to serve as a vehicle for passing profits to certain individuals or entities. 

In the Australian corporate landscape, Dividend Access Shares are particularly relevant for closely held companies or family owned businesses where there is a need to distribute profits among members without altering the existing power dynamics or ownership structure. Their usage supports tax planning strategies and can be critical during periods of restructuring, estate planning, or corporate succession. 

Key Features

Right to Dividends

One of the most prominent features of Dividend Access Shares is their entitlement to dividends. This right is uniquely discretionary; dividends can be declared by the company’s directors specifically for this class of shares depending on the company’s financial performance and dividend policies.  

The flexibility offered by Dividend Access Shares allows companies to manage cash flows and dividend payouts more effectively, aligning them with strategic financial goals. 

No Voting or Residual Rights

Unlike ordinary shares, Dividend Access Shares do not carry voting rights. Shareholders with Dividend Access Shares do not participate in the decision making processes of the company. This feature is particularly advantageous in maintaining control within a select group while still distributing profits to a wider circle.  

Furthermore, these shares do not grant any rights to the company’s residual assets upon liquidation, which means they purely serve a financial distribution role without impacting corporate governance or asset distribution after the company ceases operations. 

Typically Issued for Nominal Consideration

Dividend Access Shares are often issued for a nominal consideration, which means they can be acquired at minimal cost. This makes them an attractive option for including new stakeholders in dividend plans without significant capital outlay or altering the existing balance of financial investment in the company. 

These features make Dividend Access Shares a versatile financial instrument within the Australian business environment, tailored to meet specific financial and strategic needs while adhering to the regulatory framework governing corporate shares and dividends. 

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The creation and issuance of Dividend Access Shares require meticulous documentation to ensure compliance with legal standards and to substantiate the integrity of their use.  

This includes clear and detailed records of corporate resolutions to issue Dividend Access Shares, amendments to the company’s constitution if necessary, shareholder agreements outlining the rights attached to these shares, and any other relevant documents. Proper documentation supports the transparency and legality of Dividend Access Shares and provides essential evidence in the event of a tax audit or legal review. 

Companies must maintain credible evidence to justify the issuance of these shares, demonstrating that it serves a genuine business purpose rather than merely a tax avoidance strategy. 

Tax Implications 

Dividend Access Shares raise several complex tax issues that must be understood carefully to avoid adverse tax consequences. These issues revolve around the inherent features of Dividend Access Shares and their interaction with various tax laws. 

Direct Value Shifting

Direct value shifting occurs when the issuance of Dividend Access Shares impacts the value of other shares by transferring value from one group of shareholders to another without adequate compensation 

Under certain conditions, this could trigger adverse tax consequences under the value shifting provisions of the Income Tax Assessment Act 1997 (ITAA 1997). Companies need to ensure that the issue price of Dividend Access Shares is appropriately set to reflect their market value to avoid these implications. 

Debt/Equity Rules

The debt/equity rules, as stipulated in Division 974 of the ITAA 1997, are designed to categorise financial instruments as either debt or equity for tax purposes based on their substance rather than their form.  

Since Dividend Access Shares typically do not involve a commitment to repay the amount financed and do not carry the right to interest payments, they are generally treated as equity. However, any terms that resemble debt could complicate this classification and affect tax outcomes, particularly concerning franking credits. 

Dividend Streaming

Dividend streaming involves directing dividends and their associated tax credits to selected shareholders, which can be seen as an attempt to maximise tax advantages unfairly.  

The provisions in Subdivision 204-D of the ITAA 1997 aim to prevent such practises, by ensuring that dividends are distributed equitably among shareholders according to their shareholdings. Compliance with these rules is crucial when Dividend Access Shares are used, as their discretionary dividend rights could potentially facilitate dividend streaming. 

General Anti Avoidance Issues under Part IVA

Part IVA of the ITAA 1936 contains general anti avoidance rules that apply when schemes are carried out primarily for the purpose of obtaining a tax benefit. The issuance of Dividend Access Shares could be subject to scrutiny under these rules if perceived as part of a scheme to avoid tax. Companies must be prepared to demonstrate that the use of Dividend Access Shares serves legitimate business purposes beyond merely obtaining tax benefits. 

These legal and tax considerations underscore the importance of strategic planning and compliance when integrating Dividend Access Shares into corporate structures, ensuring that all regulatory requirements are met to avoid legal and financial penalties. 

Practical Applications 

Dividend Access Shares offer unique flexibility in corporate financial management and distribution strategies. Below are some practical applications that highlight how Dividend Access Shares can be utilised effectively within various corporate scenarios. 

Asset Protection

Dividend Access Shares are often used as a strategic tool for asset protection. By separating the dividend rights from other shareholder rights such as voting and claims on assets, Dividend Access Shares can be used to distribute profits to shareholders without exposing these assets to potential creditors.  

This is particularly useful in businesses where owners wish to protect accumulated profits while maintaining control over the company. 

Estate and Succession Planning

In estate and succession planning, Dividend Access Shares can facilitate the smooth transition of wealth without disrupting the operational control of the business. They allow for dividends to be passed to heirs or successors without necessarily giving them control over the business decisions, thus preserving the founding or current generations management while supporting the next generation financially. 

Employee Share Schemes

Dividend Access Shares can be incorporated into employee share schemes to align employee interests with those of the company by allowing employees to benefit from dividends. This can be an incentive that rewards employees for the companys success without conferring voting rights, which typically remain with the senior management or the company founders. 

Corporate Restructuring During Significant Events

During significant events such as divorces, mergers, or acquisitions, Dividend Access Shares can be used to restructure ownership and profit sharing arrangements without altering control dynamics. For example, in a divorce, one party may retain control over the business while the other receives Dividend Access Shares as a form of settlement, providing income without granting control or ownership. 

Risks and Limitations 

The misuse of Dividend Access Shares can lead to significant legal and financial repercussions. For instance, if Dividend Access Shares are used primarily as a tax avoidance scheme, it could attract scrutiny and penalties under anti avoidance provisions. Mismanagement or opaque structuring of Dividend Access Shares could also result in disputes among shareholders, especially if the distribution of dividends is seen as unfairly favouring certain parties over others.  


Dividend Access Shares vs Other Shares 

To facilitate a clearer understanding of the differences between Dividend Access Shares, Ordinary Shares, Preference Shares, and Non Voting Shares, a side by side comparison is presented in the table below. This comparison highlights the key attributes, typical uses, and financial implications of each share type. 

Attribute  Dividend Access Shares Ordinary Shares  Preference Shares  Non Voting Shares 

– Right to dividends only 

– No voting rights 

– No claim on residual assets 

– Right to dividends  

– Voting rights  

– Claim on assets upon dissolution 


– Priority on dividends (fixed or set rate) 

– May have priority on assets upon dissolution 

– May or may not have voting rights 

– Right to dividends  

– No voting rights  

– Claim on assets upon dissolution 

Typical Uses 

– Tax planning 

– Asset protection 

– Flexible dividend distribution without affecting control 

– Raising capital 

– Distributing control and ownership 

– Fundamental equity stake in company 


– Attracting risk averse investors 

– Financing without diluting control (if non voting) 

 – Fixed income investment option 

– Expanding equity base without diluting voting power 

 – Allowing family members or employees to benefit financially without control 

Financial Implications 

– Minimal impact on financial structure as typically issued at nominal value 

– Allows targeted dividend distributions 

– Affects governance and economic standing 

– Directly aligns shareholder interests with company performance 

– Provides fixed returns, reducing financial variability 

– Can affect cash flow due to fixed dividend obligations 


– Allows for equity expansion without affecting control dynamics 

– May complicate governance if conflicts arise between voting and non voting shareholders 

Control Impact 


– No impact on control dynamics within the company 


– Provides control over company decisions through voting rights 


– Limited control, depending on the presence of voting rights 


– No impact on control, maintains status quo in decision making 

Strategic Considerations

Dividend Access Shares

Best suited for situations where there is a need to distribute profits without altering control or power within the company. Useful in closely held companies for specific financial planning goals. 

Ordinary Shares

Fundamental for companies seeking to raise capital through public or private markets, providing investors with a stake in both the profits and control of the company. 

Preference Shares

Ideal for creating a structured financing option that appeals to investors looking for lower risk and fixed returns, often used to attract strategic investors without sacrificing control. 

Non Voting Shares

Useful for diluting equity without diluting control, often used in family businesses or startups that wish to reward employees or family members without giving up control. 

This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.