Dividend washing loophole to close
The Government has sought to use the Federal Budget to close off what it describes as a tax loophole that has allowed investors to indulge in so-called ‘dividend washing’.
The Budget papers claim that the loophole has been used by sophisticated investors to trade franking credits, resulting in some receiving two sets of franking credits for the same parcel of shares.
It claimed the measure would add around $60 million to revenue over the forward estimates.
“Currently, sophisticated investors can engage in 'dividend washing' to, in effect, trade franking credits. This can result in some shareholders receiving two sets of franking credits for the same parcel of shares. This is outside the intent of the dividend imputation system,” the Budget papers said.
They said the measure would ensure that when an investor engaged in 'dividend washing' by selling shares with a dividend and then immediately buying equivalent shares that still carried a right to a dividend, they would only be entitled to use one set of franking credits.
The Budget said the changes would be targeted to the two‑day period after a share goes ex‑dividend.
It said the Government would consult on the development of the legislation.
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