Treasury has released a discussion paper relating to the test for payment of dividends in section 254T of the Corporations Act 2001 and other changes implemented by the Corporations Amendment (Corporate Reporting Reform) Act 2010 in June 2010.

The dividends test was amended to replace the profits-based test with a net assets test. Stakeholders have raised concerns about various aspects of the new dividends test including the operation of franking arrangements and its relevance to solvency.

The discussion paper provides options for dealing with stakeholder concerns including adopting new arrangements under which a company would have two ways of determining whether it could pay a dividend.