A new law that prevents taxpayers from benefiting from dividend washing has been enacted. The new integrity rule is intended to help taxpayers understand their tax responsibilities and comply with the legislation.
Dividend washing occurs when a shareholder seeks to claim two set of franking credits. This is done by selling shares after a dividend payout has been announced ex-dividend, meaning that both the dividend and the franking credit remain with the investor. The investor then repurchases shares in the same company that have both the dividend and the franking credit attached. Thus, they have come to be in possession of two sets of franking credits for one set of shares.
Investors who have entered into dividend washing in the past few years should have received written correspondence from the ATO requesting that they amend their tax returns for the relevant income years. If amendment requests are received by the ATO before the date specified in the letter no penalties will be applied. Individuals who have engaged in dividend washing but have not received correspondence from the ATO will be offered the same penalty remission if amendments are made by 22September 2014.