Integrity rules operate to ensure that:
- the imputation system is not used to benefit members who do not have a sufficient economic interest in the entity, and
- the imputation system is not used to give preference to some members over others.
Example: Wastage of franking credits
When a non-resident receives a franked dividend the maximum tax benefit available to the non-resident is an exemption from dividend withholding tax which is levied at 15% for countries having a double tax agreement with Australia.
This is despite the fact that the dividend is generally franked with credits which represent tax paid at 30%.
Effectively, the distribution of franked dividends to the non-resident shareholder 'wastes' franking credits which, if diverted to a taxable resident, could be fully used.
End of example
Three specific anti-streaming rules were introduced with the simplified imputation legislation. The three rules are:
- a rule modelled on the former anti-streaming rule dealing with linked distributions
- a rule modelled on the former anti-streaming rule for tax-exempt bonus shares
- an anti-streaming rule involving distributions to provide imputation benefits to members who benefit more from franking credits than other members. This is commonly known as dividend streaming. This rule is also modelled on the former anti-streaming rule for dividend streaming, and
- a general rule, called the disclosure rule, was introduced to help the Commissioner identify cases where the anti-streaming rules might have application. It applies where an entity's benchmark franking percentage varies significantly between franking periods. Refer to section on the benchmark rule.