The ATO warned it is reviewing certain structured arrangements that involve the transfer of shares around the shares’ ex-dividend date.
“We are concerned these arrangements involve taxpayers inappropriately receiving franking credits in breach of rules designed to maintain the integrity of the imputation system,” said the ATO.
According to Taxpayer Alert (TA) 2018/1:
The arrangements involve an Australian taxpayer with a long position in Australian shares legally acquiring, but having little or no economic exposure to, an additional parcel of the same shares and holding those shares over the ex-dividend date. They will typically involve the use of securities lending arrangements in combination with, repurchase agreements or derivative contracts (contracts), to create what is essentially a circular flow of shares. Although the Australian taxpayer has no or only nominal economic exposure to the additional parcel of shares on a stand-alone basis, the Australian taxpayer claims franking credits in respect of both the existing long position and the additional parcel of shares.