On 30 April 2014 the Commissioner of Taxation issued Tax Determination TD 2014/10, a copy of which can be found at the following link, http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD201410/NAT/ATO/00001 which advises that the general anti-avoidance provision contained in Part IVA of the Income Tax Assessment Act 1936 may apply to “dividend washing schemes”.
Broadly, the ATO has expressed the view that a dividend washing scheme will exist where a taxpayer disposes of shares in a company which have gone ex-dividend and shortly thereafter buys shares for similar value in the same company which are cum-dividend such that the taxpayer receives two franked dividends from the company. The ATO sees this as a taxpayer receiving two franked dividends from what is effectively one parcel of shares. It is unclear whether there are other similar arrangements which the ATO also considers to be dividend washing schemes.
The ATO is of the view that Part IVA may apply to such transactions and that the taxpayer will not be entitled to a credit for the franking credit on the dividend received in respect to the cum-dividend shares (the mechanism for an adjustment is for the gross up for the franking credit to be excluded from income and no credit allowed for the franking credit).
There has been comment in the press recently that the ATO has written to approximately 3,000 taxpayers they believe may be involved in dividend washing arrangements inviting them to seek amendments to their tax returns to exclude the franking credit from the cum-dividend shares. We understand such taxpayers have until 28 May 2014 (28 days after the issue of the final Tax Determination) to make a voluntary disclosure. The ATO has indicated that if a voluntary disclosure is made by 28 May 2014 no penalties will be applied – see the following link to the ATO website in relation to the voluntary disclosure. The ATO has advised that the 28 May 2014 deadline only applies to taxpayers who have received an ATO letter.
The ATO has also advised that taxpayers involved in dividend washing schemes who have not received a letter can still make a voluntary disclosure and it is understood they will be afforded the same concession regarding penalties. While the 28 May 2014 deadline does not apply to such voluntary disclosures taxpayers should be cognisant that any such disclosure would need to be made prior to the ATO commencing any audit action as once audit action commences the no penalty concession will not apply.
In either circumstance (whether or not a letter has been received) interest on underpaid tax is payable by the taxpayer.
What you need to do?
If you need any assistance determining whether your activities may constitute “dividend washing” or you believe you have been involved in “dividend washing” please contact your Blaze Acumen advisor and, if required, we can assist you in making a voluntary disclosure and seeking amendments to your tax returns.