ATO closes door on dividend washing
The Australian Taxation Office (ATO) has moved to remove any doubt around the status of dividend washing, issuing a public ruling this week confirming that such practices are definitely covered by the terms of its anti-avoidance legislation.
The status of dividend washing was made clear by ATO deputy commissioner Tim Dryce, who confirmed the public ruling and said the anti-avoidance legislation has always applied to dividend washing arrangements.
"This supports our position that getting two sets of franking credits on what is essentially one parcel of shares is not allowed," Dyce said.
The public ruling states that the franking credit anti-avoidance rule will generally apply to a dividend washing arrangement to deny the franking credit benefit on the second parcel of shares.
At the same time as making clear the public ruling, Dryce also announced that the ATO was extending the grace period for people to self-amend their tax returns without penalty until 28 May.
In May 2013, the Government announced an integrity measure to further combat these types of arrangements with an intended date of 1 July 2013.
According to the ATO, dividend washing involves arrangements that enable a taxpayer who effectively holds a single parcel of shares to obtain double franking credits. This occurs when an investor, who has access to the Special Market operated by the Australian Securities Exchange, sells shares ex-dividend (seller retaining the dividend with franking credits) and then buys cum-dividend shares in the same company on the Special Market (buyer receiving the dividend with franking credits).
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