Speaking to SMSF Adviser, SPAA’s senior manager, technical and policy, Jordan George, said the legislation prevents dividend washing practices where an investor sells and reacquires the same interest to obtain the benefit of a franking credit twice.
“We do not think the vast majority of SMSFs will be caught by the legislation as we have little evidence of SMSFs undertaking this type of dividend washing transaction,” said Mr George.
“Dividend washing needs to be facilitated through a specialised com-dividend market, which most SMSFs would not have access to. Further, most SMSF trustees have a longer-term perspective on their investments than just tax arbitrage.
“However, as it applies generally to taxpayers investing in shares, SMSF trustees need to be aware of the legislation.”
Mr George noted the legislation carves out small investors who have received under $5,000 in franking credits in an income year – this is only limited to individual investors but not SMSF trustees.
“So while SPAA does not expect the vast majority of SMSF trustees to be affected by the legislation, trustees and their advisers need to be aware of the legislation. This is especially the case if they have strategies in place that are aimed at attaining franking credits from a dividend washing strategy,” Mr George said.
It is not the trustees but their brokers you need to watch. I had a SMSF where the broker advised the trustees to buy a certain stock and then contacted the Trustees again to buy it back, not advising the trustees that a dividend wash was in play. The broker gets two juicy brokerage fees and no responsibility, the SMSF gets a letter from the ATO, additional accounting fees to find out the information, answer the letter and amend the income tax return. Sweet work if you can get it. No SOA from the Broker for the share transactions, no advice about the fact it was a dividend wash. So easy for the ATO to check – just has to ask for all trades on the secondary market – how easy for the ATO – like shooting ducks in a barrel. The result the client gets left holding the baby. Should ASIC be doing something about this where there is no advice to the Trustees, no warning of the dangers. Brokers says they can get away with it because of time critical advice. I still thought this needed an SOA.