rather than dividends. Co-operative companies do, however, have issued share capital and may pay dividends to members. The number of shares held may, however, be unimportant since the return members obtain usually depends primarily on their transactions with the co-operative rather than their shareholdings. We therefore propose that co-operative companies be treated in much the same way as we have recommended for the producer boards. Thus, they would have the option of electing to make a payment to members non-deductible to the co-operative for tax purposes in which case it would be treated as a dividend. Credits could then be allocated to the dividend. In the event that cash dividends were not available, the notional dividend allocation mechanism outlined for the producer boards could be used. In either case, the credits would be allocated to members on the basis of their transactions with the co-operative. 9.6.2 Since some co-operative companies do, however, have a share capital and pay dividends, they should be also be able to allocate credits to dividends or taxable bonus shares in the same way as other companies. 9.6.3 The present section 199 applies not only to co-operative companies but more generally to "mutual associations". An association is widely defined as "any body or association of persons, whether incorporated or not". The Committee is uncertain of the nature of any unincorporated mutual associations and of their tax treatment. We therefore refrain from making any recommendations on the way they should be treated under imputation. Our recommendations therefore apply only to co-operative companies. Recommendation 9.6.4 The Committee therefore recommends that co-operative companies be treated in the same way as the producer boards for the purposes of imputation except that they also have the option available to other companies of allocating credits to dividends or taxable bonus shares. 9.7 Sharemilking Arrangements 9.7.1 One of the issues outstanding from our first report was whether a special arrangement was needed for sharemilkers who receive product payments through members of co-operatives though they themselves are not members. This would be the case under some sharemilking agreements. Where payments by a dairy company for milk supplied are made directly to a
rather than dividends. Co-operative companies do, however, have issued share capital and may pay dividends to members. The number of shares held may, however, be unimportant since the return members obtain usually depends primarily on their transactions with the co-operative rather than their shareholdings. We therefore propose that co-operative companies be treated in much the same way as we have recommended for the producer boards. Thus, they would have the option of electing to make a payment to members non-deductible to the co-operative for tax purposes in which case it would be treated as a dividend. Credits could then be allocated to the dividend. In the event that cash dividends were not available, the notional dividend allocation mechanism outlined for the producer boards could be used. In either case, the credits would be allocated to members on the basis of their transactions with the co-operative. 9.6.2 Since some co-operative companies do, however, have a share capital and pay dividends, they should be also be able to allocate credits to dividends or taxable bonus shares in the same way as other companies. 9.6.3 The present section 199 applies not only to co-operative companies but more generally to "mutual associations". An association is widely defined as "any body or association of persons, whether incorporated or not". The Committee is uncertain of the nature of any unincorporated mutual associations and of their tax treatment. We therefore refrain from making any recommendations on the way they should be treated under imputation. Our recommendations therefore apply only to co-operative companies. Recommendation 9.6.4 The Committee therefore recommends that co-operative companies be treated in the same way as the producer boards for the purposes of imputation except that they also have the option available to other companies of allocating credits to dividends or taxable bonus shares. 9.7 Sharemilking Arrangements 9.7.1 One of the issues outstanding from our first report was whether a special arrangement was needed for sharemilkers who receive product payments through members of co-operatives though they themselves are not members. This would be the case under some sharemilking agreements. Where payments by a dairy company for milk supplied are made directly to a
1988-other-international-tax-report-part-2-vol-1.docx