Australia’s tax office has written to major finance houses, warning of severe penalties if they don’t admit to over-claiming franking credits on shares, as part of a drive to collect as much revenue as possible ahead of the upcoming budget.
According to the Australian Financial Review, some of Australia’s top financiers are livid the ATO could use data going as far back as 2010 to examine their activities, much further than had been expected.
The previous Labor government first announced a crack down on the practice of “dividend washing”, which occurs when an investor sells shares in a company that’s just announced a franked dividend. Shortly afterwards, the person buys a similar amount of shares in the same company, which gives them the franked dividend on the new ones, thus doubling the tax benefit.
Treasurer Joe Hockey also said in November last year he wanted to close the “loophole”, signalling an end to a practice that was reportedly quite common.
ATO deputy commissioner Tim Dyce, according to the AFR, wrote to 3000 people or entities, offering amnesty if they made admissions about their franking credit arrangements.
“Our information indicates you, or an entity closely associated with you, participated in a franking credit arrangement,” he wrote in the letter, which also informed recipients:“In this case, two sets of franking credits have been claimed on what is effectively the same parcel of shares.”
“If we receive a request to amend your tax return by the above date a penalty will not be applied,” Dyce said. “If you do not respond by the above date, we may take further compliance action that could result in an audit. Penalties may apply in relation to amendments that result from audit activity.”
According to the AFR, the new law will apply from July 1, 2013, to investors who have franking credit tax offset entitlements in excess of $5000, with the revenue driving push linked to other measures such as an amnesty offer for high net worth individuals with assets in offshore tax havens.
There’s more here.