Typically, dividend stripping arrangements are used to get large sums of money into a concessionally taxed superannuation environment, and the ATO has issued several compliance warnings including taxpayer alerts.
Of the 61 cases over the last two years, 25 were taken to the ATO General Anti-Avoidance Rules (GAAR) panel, which is a consultation group comprised of senior ATO tax staff and industry representatives.
“The panel found that in 19 of the cases it was reasonable for the commissioner to apply the Part IVA provisions. The commissioner has now agreed to terms of settlement in 13 cases, with a further four still under consideration,” ATO deputy commissioner James O’Halloran said at the SMSF Association’s national conference in Sydney.
“In instances where significant SISA breaches have occurred, outcomes have involved rectification of the SISA breaches to return the fund to full compliance with SISA, such as disposing of the shares, winding up the target company,” he said.
“In some cases, trustees have been removed and trustees have agreed to roll their assets to an SAF. From an income tax perspective, trustees are being required to repay franking credits and forego the benefit of future franking credits,” he said.
You can read more about the ATO’s views on dividend stripping arrangements here.