Many will think of the Constitution of their company as a predominantly commercial document setting out the powers and procedures for the making of decisions by directors and shareholders, and the rights attaching to shares in respect of dividends, voting and winding up.
As far as tax is concerned the main focus is to allow for different classes of shares.
However, the content of the Constitution has an impact on the tax results in at least three important ways:
- Super contributions for directors;
- Differential dividends;
- Issue of shares of a different class.
Super Contributions for Company Directors
A tax deduction is generally available for contributions made by an employer for the benefit of an employee.
For a number of years the general view has been that deductions also apply for contributions for directors. A basis for this was that the income tax legislation allowed a deductions for superannuation contributions for persons employed by a company, and the legislation deemed directors to be employed by the company (the additional requirements that they be engaged in producing assessable income or in the business of the company would ordinarily be satisfied in a trading business).
However, were substantially changed in 2007 with the Simpler Super Regime.
The revised requirements for employer contributions run as follows:
- A deduction is available for contributions for employees (directors do not fall within the ordinary meaning of employee);
- Employees are deemed to include those falling within the extended meaning in the Superannuation Guarantee legislation;
- There are also the conditions that the employee be engaged in producing the company’s assessable income or its business, that the fund is a complying fund and the employee satisfies certain age conditions.
The Super Guarantee legislation does not deem any director to be an employee. Rather, it deems ...