McKern News

Dividend washing: Don’t hang yourself out to dry

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No, this is not where you launder your dividends, dividend washing is a loophole in the law that the government wants to close. Ultimately, dividend washing is when a trader sells their shares in the correct time period ex dividend (the trader keeps the franking credit) and then buys back effectively the same shares cum dividend (with the franking credit). By doing this, the trader will receive two sets of franking credits for effectively the same parcel of shares.

With the proposed law change, the government will allow the trader to keep the franking credits if sold ex dividend, yet if the trader then purchases a parcel of ‘substantially identical’ shares cum dividend, then they will not have access to the new franking credits.

Although the term ‘substantially identical’ may suggest the interests need to be identical to the original package, it can also means that if a new purchase of a different share class is able to be interchangeable with the original class, then the government will see this as substantially identical and the trader will only be entitled to the first amount of franking credits.

Please note that this will not apply to small shareholders where the total of their franking offsets will be less than $5,000.

If you have any queries regarding this article or any other information, please to do not hesitate to contact the office.

This article was written by Mitch Daly, an Accountant at our Burleigh Office. Mitch has recently completed his Bachelor of Commerce and joined the M&A team in early 2014. Outside of work Mitch enjoys sports, both playing and watching, and making the most of the Gold Coast surf!