3 October 2013 Media article 2013/26

ATO warns on trading shares on the special market to obtain additional franking credits

The ATO is warning people to be cautious when using share trading transactions known as dividend washing, which we do not believe are allowable under tax law.

The ATO is concerned that some entities are trading listed shares on a Special Market operated by the Australian Securities Exchange (ASX) with the sole purpose of obtaining additional franking credits.

The Special Market operated by the ASX was established to facilitate options trading. 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.

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 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. A description of the arrangement is attached to this Media Release.

The ATO intends to issue a Public Ruling on this issue. People that enter into such trades may face penalties under anti-avoidance legislation.

Second Commissioner Bruce Quigley said “The end result is that the taxpayer receives double the entitlement of franked dividends on effectively one parcel of shares. This arrangement may appear attractive to entities who pay lower rates of tax or who are in a loss situation.”

“The ATO believes dividend washing trades are not allowable under tax law. We have has access to information which will identify those involved in dividend washing. We encourage taxpayers to correct their tax affairs voluntarily otherwise they risk an audit.”

Anyone who has participated in these arrangements, and makes a voluntary disclosure before they are contacted by the ATO, will be entitled to a reduction in penalties.

Taxpayers wishing to make a voluntary disclosure should visit ato.gov.au or call 1800 177 006.

ENDS

More information

More information in relation to Dividend Washing Schemes is available on the ATO website and search for Dividend Washing or by phoning 13 28 61.

Taxpayers who are unsure about their own circumstances should seek independent advice or apply for a private ruling from the ATO.

For further enquiries from members of the media: 02 6216 1901 or 0401 147 127.

Last modified: 06 Mar 2015QC 37333