Previously the ATO had revealed that in March 2014 3,000 letters had been sent to taxpayers who the ATO suspected of being involved in a dividend washing arrangement. Of these 3,000 original letters approximately 1,300 have “responded by coming forward to make voluntary amendments under which the franking benefits obtained from dividend washing transactions have been removed from their tax returns”.
Concern by two successive governments over dividend washing by SMSFs and other taxpayers has lead to two consultation processes, many announcement and now legislation which some have argued has increased complexity and created issues of retrospective legislation.
What is Dividend Washing?
A dividend washing scheme was described in a recent speech by Matt Bambrick, Assistant ATO Commissioner:
“Dividend washing is a share trading strategy that enables a taxpayer to access double the franking credits attached to fully franked dividends even though the taxpayer effectively holds only one parcel of shares. The shares are purchased in a special market that allows the taxpayer, often an SMSF, to re-acquire shares with a dividend attached, after the ex-dividend date, allowing them to take advantage of the additional franking credits to offset their tax liability or receive a refund of the excess imputation credits.”
The speech, Update from the ATO on recent compliance activity, areas of concern with SMSFs and the ATOs future priorities, was given to the CPA Learn from the Masters SMSF Conference and Expo 2014.
SMSF Overseas Seminars
The ATO is concerned about promotors advertising “questionable SMSF conferences in overseas destinations”. It appears these seminars may be of limited value to the SMSF as they include “minimal training related to SMSF activities”. However the promotors claim the that the full costs of the trip can be claimed as a tax deduction. The ATO warns that: