The ATO has warned taxpayers against trading shares on a Special Market operated by the ASX with the sole purpose of obtaining additional franking credits. It says the Special Market operated by the ASX was established to facilitate options trading and the dividend washing trading strategy attempts to take advantage of a company’s shares being traded on this Special Market to generate an unintended outcome. Therefore, the ATO said the transactions could constitute dividend washing and is not allowable under tax law.
According to the ATO, the arrangement occurs where a taxpayer sells shares in a company on the ordinary market after a franked dividend has been announced, and so retains the franked dividend. Then, it says within days, the taxpayer buys back a similar parcel of shares in the same company on the Special Market, which also entitles them to the franked dividend on these shares. The Tax Office says it intends to issue a Public Ruling on the issue and taxpayers that enter into such trades may face penalties under anti-avoidance legislation.
Source: ATO media release 2013/26, 3 October 2013
[LTN 193, 4/10/13]