The Government has released for public comment draft legislation, together with accompanying explanatory materials, to amend the income tax law to prevent dividend washing.
The Government announced it would proceed with this measure on 6 November 2013, as part of its consideration of the announced but not enacted measures of the former Government.
Dividend washing (also referred to as distribution washing) allows an entity to obtain multiple franking credit entitlements in respect of a single underlying economic interest. To dividend wash, an entity sells an interest shortly after becoming entitled to receive a fully franked distribution in respect of that interest, then shortly after purchases a new and substantially identical interest that also provides an entitlement to another fully franked distribution.
This draft legislation would amend the tax law to deny an entity the benefits of any additional franking credits that an entity receives as a result of dividend washing.
The amendments will have effect from 1 July 2013.