On 1 May 2015, the Australian Taxation Office (ATO) issued a Taxpayer Alert (TA 2015/1) in relation to dividend stripping arrangements involving the transfer of private company shares to a self managed superannuation fund (SMSF).
These arrangements essentially involve a private company with accumulated profits paying franked dividends to a new SMSF shareholder and the original shareholders benefitting as members of the SMSF from franking credit refunds to the SMSF. This could include, for example, the transfer by a member to their SMSF of shares in a corporate beneficiary that holds retained earnings sourced from trust distributions.
The ATO considers that such arrangements have features of a dividend stripping operation (to which Part IVA could apply), may give rise to non-arm's length income for the SMSF, and capital gains tax consequences for transfers below market value. The ATO is concerned that such arrangements are contrived to avoid 'top-up' income tax on the dividend income and for the SMSF to receive a refund of the franking credits. The ATO has warned that any tax benefit for the transferring shareholders may be cancelled and/or the SMSF denied the franking credit tax offset.
To discuss the Alert, or for any further information please contact: