Spillover Dividend

Posted in Finance, Accounting and Economics Terms, Total Reads: 1187

Definition: Spillover Dividend

It is a dividend type that is actually paid out in a particular year but the year in which it is taxed is different. This mostly happens when the announcement of dividend happens at the end of a particular calendar year and the actual payment of the dividend happens in the coming year.

For example, the company XYZ declares a dividend on March 4th 2015 for shareholders on record date of March 1st will be paid a dividend of 100% with distribution date as April 25th 2015. Though the actual payment is happening in the Financial Year 2015-16, the declaration date is taken into account for tax purposes and hence the taxable income for FY 2014-15 is based on dividend payment and not FY 2015-16.

In the case of a Registered Investment Company (RIC) i.e., Mutual Funds, Real Estate Investment Trusts (REIT’s), Unit Investment Trusts (UIT’s) etc., the US law states that such spill-over dividends must be declared by the 15th day of the 9th month after the end of the taxable year. And it must be paid not later than the first regular dividend paid after that declaration. Also, the shareholders in general are taxed on dividends in the year when the actual payment of these dividends takes place. The due date for an RIC (or any corporate) to file its tax return is the 15th day of the third month in the next financial year (in this case March 15th in next calendar year in US) an automatic extension for filing the return for a period of six months can be obtained if Form-7004 is filed before the actual due date of tax return. Since RICs usually make use of the automatic six-month extension for the purpose of filing tax returns, this effectively means that RICs have the option to declare Spillover dividends by 9.5 months after the present taxable year.


Hence, this concludes the definition of Spillover Dividend along with its overview.

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