Non-widely held trusts and the qualified persons rule

On 18 November 2025, ATO guidance QC 105857 was updated after the ATO raised concerns with arrangements where newly incorporated beneficiary companies claim franking credits.

Background

Australia introduced the dividend imputation system in 1987 to address the issue of double taxation for dividends (at the company level and the shareholder level). Part IIIAA of the Income Tax Assessment Act 1936 (Cth) (ITAA36) provided the franking rules. Even back then, the dividend imputation system offered a “franking credit” for tax paid by the company when its taxed profits were distributed by way of “franked dividends” to the company’s shareholders.

As franking credits pass to the registered shareholder at the book-closing date for the dividend, investors could abuse the system by buying shares just before the book-closing date and selling shares the following day without the dividend attached. The result has the investor receiving the fully franked dividend, and a capital loss due to the share price dropping by an amount equivalent to the amount of dividends.

As a response to these issues, parliament inserted Div 1A, containing the qualified person rule, into Pt IIIAA.1

The full paper is available to Sladen Smart Members sign up/login here to continue reading.