Anti-Dividend Washing Measures Introduced In Australia
03 July 2013
Posted by: Author: Mary Swire
Author: Mary Swire
The Australian Government has released additional information on its plans to prevent the practice of "dividend washing," designed to protect the integrity of the tax laws.
The Government has worked on the proposals in conjunction with the Australian Financial Markets Association, the Australian Custodial Services Association, the Financial Services Council, and the Tax Institute.
Under the changes, a specific integrity rule will be inserted into the Income Tax Assessment Act 1997. It will target the four-day period between an ex-dividend date and the record date of a membership interest, when a company closes its share register to determine which shareholders are entitled to a dividend.
In particular, the rule will apply to cases where an entity or one of its associates disposes of the membership interest on an ex-dividend basis, and subsequently acquires a substantially identical membership interest on a cum-dividend basis. The entity will not be eligible for a franking credit tax offset on the distribution of the membership interest, and any franking credits on the distribution of the acquired membership interest will not be included in the entity's assessable income.
The measure will only apply to investors that have franking credit tax offset entitlements in excess of AUD5,000 (USD4,594). It will be considered applicable from July 1, 2013, and the Government will consult on draft legislation in due course.
Assistant Treasurer David Bradbury said: "It is important that we have an effective measure to prevent dividend washing that also avoids any unnecessary business compliance costs. Our approach will ensure that sophisticated investors are no longer able to receive two sets of franking credits on what is essentially the same parcel of shares.
"This will support investment by improving the efficiency and integrity of Australia's tax system, and ensure its long-term sustainability for all Australians."