Early ATO warning – franked distributions funded by capital raisings
The ATO is considering its position on the recent transactions of some public companies involving franked distributions (by way of special dividends or otherwise) which are funded by equity raisings. We have some concerns about these types of arrangements and a taxpayer alert will be available soon.
The ATO is reviewing arrangements where companies raise new capital to fund franked distributions and release accumulated franking credits to shareholders.
“We consider that these arrangements are being entered into by companies with accumulated franking balances to release franking credits which they otherwise would have retained,” Deputy Commissioner Tim Dyce said.
In a typical case the ATO is seeing companies issue rights to shareholders and use funds raised to make franked distributions via special dividends or an off-market share buy-back.
These arrangements are distinct from ordinary dividend reinvestment plans involving regular dividends.
The ATO considers that these arrangements may not be compliant with the tax law, in particular the general anti-avoidance provisions. Therefore, there may be adverse implications for shareholders and companies involved in these arrangements.
“In addition to working with taxpayers in recent cases, we are engaging with key large business stakeholders on the arrangement and will work with affected taxpayers to help them comply with the law,” Mr Dyce said.
Early engagement
Taxpayers who have entered into, or are contemplating entering into an arrangement similar to this are encouraged to discuss their situation with us.
To find out more please call the office on 1300 788 491.
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