Liquidating Dividends in Australia: 2025 Guide for Investors

Liquidating dividends are back in the spotlight for Australian investors, as a wave of company wind-downs and restructures sweeps through 2025. Whether you hold shares in a listed business, a family company, or you’re considering investing in a firm undergoing structural change, understanding liquidating dividends is crucial for protecting your capital and planning your tax strategy.

What Is a Liquidating Dividend?

Unlike regular dividends, which are paid from a company’s profits, a liquidating dividend is a distribution of capital when a company is partially or fully winding up. Essentially, it’s the process of returning shareholder funds as the business ceases operations or sells off major assets. For example, if a mining company completes its final project and sells its remaining land and equipment, shareholders may receive liquidating dividends from the proceeds.

Key characteristics of liquidating dividends:

• Paid from company assets, not profits

• Often occur during company liquidation, mergers, or large asset sales

• Reduce the investor’s cost base in the shares, affecting capital gains tax (CGT)

How Liquidating Dividends Work in Practice

Let’s say you own shares in an ASX-listed retailer that announces it will cease trading and liquidate its assets. Once debts and obligations are settled, the company distributes the remaining cash to shareholders in proportion to their holdings. These payments are classified as liquidating dividends, not ordinary income.

In 2025, this scenario is not uncommon. Several small-cap ASX companies have opted for voluntary wind-up, especially in sectors hit by post-pandemic shifts and rising operating costs. Investors should watch for official communications: liquidating dividends are typically flagged in ASX notices and company statements.

Recent Australian example: In early 2025, a boutique property trust announced it would sell its final commercial asset and distribute the proceeds as a liquidating dividend. Shareholders received detailed guidance on the tax implications, as part of the wind-up process.

Tax Implications for Australian Investors in 2025

One of the most important aspects of liquidating dividends is their tax treatment. In Australia, liquidating dividends are generally considered a return of capital, not assessable income. This means:

• The amount received reduces your cost base for CGT purposes

• If the liquidating dividend exceeds your cost base, the excess is treated as a capital gain in the year of receipt

• No franking credits are attached to liquidating dividends

2025 ATO update: The Australian Taxation Office (ATO) reaffirmed in its 2025 guidance that investors must carefully track cost base adjustments. With new digital reporting requirements, most major share registries now provide statements explicitly showing the split between capital returns and ordinary dividends.

For example, if you bought shares for $5,000 and receive a $4,000 liquidating dividend, your remaining cost base is $1,000. If a subsequent $1,500 payment arrives, you’ll record a $500 capital gain in your next tax return.

Risks and Opportunities

Liquidating dividends can offer both risks and rewards for investors:

• Cash flow boost: Receiving a large cash payout can help with portfolio rebalancing or new investments.

• Tax timing: Understanding when and how much of a liquidating dividend will be paid enables better tax planning, especially for retirees or SMSF trustees.

• Potential losses: If the company’s assets are less than your initial investment, you may crystallise a capital loss.

• Market impact: Shares may trade below asset value during wind-downs, creating opportunities—or pitfalls—for short-term traders.

What to Watch in 2025

With Australia’s corporate landscape evolving, liquidating dividends are likely to feature in more portfolios. Key signals for investors:

• Monitor ASX announcements for liquidation, merger, or asset sale news

• Read company communications on the breakdown of payments

• Track cost base adjustments and keep tax records up to date

• Consider the impact of liquidating dividends on your overall investment and tax strategy

As always, staying informed and proactive is the best way to protect your wealth as companies change course in 2025.