The ATO (Australian Taxation Office) has warned people to be careful when utilising share trading transactions as this is also known as dividend washing.
The ATO is concerned that some entities are trading listed shares on a Special Market operated by the Australian Securities Exchange (ASX) with the sole purpose of obtaining additional franking credits. The Special Market operated by the ASX was established to facilitate options trading.
The dividend washing trading strategy takes advantage of a company’s shares being traded on this Special Market where the taxpayer will sell shares on the ordinary market in a company after the franked dividend announcement, and will retain that franked dividend. Then within a few days, the taxpayer will buy back a similar number of shares on the Special Market in the same company, which will entitle them to the franked dividend on those shares as well. The end result – the taxpayer will receive twice the franked dividend entitlement on effectively one share parcel.
The ATO believes dividend washing trades are not permissible under tax law and with access to information they will identify those involved in washing of dividends. Anyone that has participated in this activity, and comes forward to make a voluntary disclosure before being contacted by the ATO, will receive a penalty reduction.
Contact Solve Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.