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BFCSA: ATO cracking down on double dipping franking credits Fund Managers and Stock brokers and investors

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ATO franking credit crackdown targets fundies, brokers and investors

Thousands of fund managers, stockbrokers and sophisticated investors have been hit with warning letters threatening audits and heavy penalties if they do not confess to over-claiming franking credits on shares.  Leading figures within the finance industry are fuming that the Australian Taxation Office believes it can use data matching to trawl back as far as 2010 to compare tax deductions with individual share trading records.  “Our information indicates you, or an entity closely associated with you, participated in a franking credit arrangement,” Deputy Commissioner Tim Dyce writes in one of the 3000 ­letters sent by the ATO. “In this case, two sets of franking credits have been claimed on what is effectively the same parcel of shares.”

Treasurer Joe Hockey announced in November last year that the ­government would close down a ­“loophole” which allowed “double ­dipping” on franked dividends in an effort to claw back $60 million in tax over the next four years. But the ­government has always maintained that the change, which is yet to be enacted, would only apply from July 1 last year. 

Investors are shocked that the ATO is now seeking to retrospectively apply the law for at least the past four years under a government directive to recover as much as tax as possible before this year’s May budget.  Tax experts warn that in many cases, investors may not even be aware that their fund manager or broker engaged in the practice on their behalf in an effort to maximise their yield from share investments

Dividend washing allows investors to double the tax benefit they receive on franked dividends.  It occurs when a taxpayer sells shares in a company on the ordinary market after a franked dividend has been announced. Within days they buy back a similar parcel of shares in the same company which entitles them to the franked dividend on the new shares  Alarmed stockbrokers and fund managers said that they will consider acting on behalf on multiple clients in order to bring a legal case to challenge the ATO’s authority

Allens law firm partner Larry Magid said that investors needed to weigh up coming forward or face paying 25 per cent more than the original amount claimed.



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  • doyla66
    doyla66 Saturday, 19 April 2014

    Now I wonder if bank CEO's got such a letter?

  • doyla66
    doyla66 Saturday, 19 April 2014

    That's interesting. I wondered how they did that. I'd never have thought of it myself.
    So now that everyone knows how to do it, will that increase the number of people double dipping?
    Of course it will!
    Caveat emptor - it's fine until you get caught - so they'll all find ways to avoid getting caught.
    That's how it works - the ATO, ASIC and Law changes reactively not proactively and the problem has to be big enough etc...
    So all those with the do-re-mi can get into the action.
    While those of us who can't even keep a roof over our family's head can sit this one out.

  • doyla66
    doyla66 Saturday, 19 April 2014

    So why have the Government not yet enacted it when announced last November? Smart shareholders and fund managers have been onto that loophole for a long long time. Just need to know when company reports are due - check definitions of cum dividend and ex dividend.

  • doyla66
    doyla66 Monday, 12 May 2014

    Are the ATO looking at lenders who double dip as well? With small lenders hitting the wall (how convenient!) while owing compensation money to borrowers this could be happening again. Are any of them claiming on insurances or onselling mortgage debt (impaired, subprime, junk loans, like the US) and then trying to get the same debt out of borrowers or, worse still, threatening to take their homes as repayment? Have ASIC, FOS or COSL reported on this yet?

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