The Australian Tax Office recently issued a media release warning taxpayers about “dividend washing”.
Dividend washing effectively allows a taxpayer to obtain two franked dividends on the same parcel of shares.
It is particularly attractive in a superannuation environment where the tax rate payable by the fund on dividends received, being 15% before pension mode or 0% in pension mode, is less than the company tax rate of 30%.
If the dividends are fully franked the super fund will receive a franking credit (i.e. a tax refund) of 15% or 30% depending on its tax status.
The ATO’s media release is a warning bell before it releases a public ruling on the issue.
The media release and details of the scheme can be found here.
Brendan Cockerill is a Business and Succession Lawyer at Dobinson Davey Clifford Simpson, 18 Kendall Lane, New Acton, Canberra ACT 2601 and can be contacted on (02) 6212 7600.