ATO gets set to target dividend washing
Bruce Quigley, ATO Second Commissioner, has warned that people who enter into ‘dividend washing’ trades may face penalties under anti-avoidance legislation. Up until now, dividend washing has been a grey area in share trading, and has seemed to have been tacitly permitted, but that is all now changing. Dividend washing occurs when:
- a local investor sells their shares in a company on the ordinary market after a franked dividend has been announced therefore retaining the franked dividend.
- they then purchase a similar parcel of shares in the same company on the Special (cum-dividend) Market, from overseas institutions that could not benefit from the franking credits. They are also entitled to the franked dividend on these shares.
The end result is that the taxpayer receives double the entitlement of franked dividends on effectively one parcel of shares,” said Bruce Quigley. The ATO intends to issue a Public Ruling on this issue. “The ATO believes dividend washing trades are not allowable under tax law. We have access to information which will identify those involved in dividend washing” said Mr. Quigley. “We encourage taxpayers to correct their tax affairs voluntarily otherwise they risk an audit.”
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