Deputy commissioner Tim Dyce has confirmed the ruling, saying that the anti-avoidance legislation has always applied to dividend washing arrangements.
“This supports our position that getting two sets of franking credits on what is essentially one parcel of shares is not allowed,” said Mr Dyce.
The public ruling states that the franking credit anti-avoidance rule will generally apply to a dividend washing arrangement to deny the franking credit benefit on the second parcel of shares.
In May 2013, the government announced an integrity measure to further combat these types of arrangements with an intended date of 1 July 2013.
The public ruling follows the ATO’s warning in October 2013 that such schemes are not allowable.
Public consultation was undertaken on the draft ruling during early 2014 and, more recently, 3,000 letters were sent to taxpayers who may be involved in dividend washing arrangements.
“During this time we have encouraged people to self-amend their tax returns with no penalty being imposed,” said Mr Dyce.
This offer to all taxpayers has been extended until 28 May 2014.
Dividend washing involves arrangements that enable a taxpayer who effectively holds a single parcel of shares to obtain double franking credits. This occurs when an investor, who has access to the Special Market operated by the Australian Securities Exchange, sells shares ex-dividend (seller retaining the dividend with franking credits) and then buys cum-dividend shares in the same company on the Special Market (buyer receiving the dividend with franking credits).