Following on from the release of Tax Determination 2014/10, the ATO has begun the process of mailing those taxpayers it believes undertook a dividend washing transaction. The ATO will not impose any penalties on taxpayers who have entered dividend washing transactions and come forward to self-amend their tax returns before the date specified in the letter they receive from the ATO. These taxpayers will of course have to pay back the extra franking credits in question.
Dividend washing occurs where a taxpayer sells shares in a listed company after the company trades ex-dividend. Having sold the shares ex-dividend the taxpayer retains the entitlement to the franked dividend payable on the share. Then, within days of the sale, the taxpayer buys back the shares on the special market and becomes entitled to a second franked dividend on the newly acquired shares. The end result is that the taxpayer acquires two dividends on one parcel of shares.
If you have received a letter from the ATO in regards to dividend washing, please contact Billings & Ellis to discuss your situation.