The full Federal Court, in a decision publisjed in October, has confirmed that a company’s distributable surplus for the purposes of Division 7A (deemed dividends) must take into account income tax later imposed as a result of the disallowance of deductions. In this matter a company paid deductions which were later disallowed and the shareholder was assessed on a deemed dividend basis to some monies he received. The shareholder argued that, in calculating whether the company had a distributable surplus from which a deemed dividend could be paid, any tax imposed as a result of the disallowed deduction should be taken into account as a present liability, even if calculated in the future. The Full court agreed.