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ARTICLE · 26 SEPTEMBER 2025

ATO Finalises Guidance On The Equity Funded Dividends Integrity Rule

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

Herbert Smith Freehills Kramer LLP

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Late yesterday, the ATO has finalised a Practical Compliance Guideline (PCG) outlining its approach to the application of the franking credit integrity rule for equity funded dividends.

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Jay Prasad
Jay Prasad
Melissa Lim
Melissa Lim
Toby Eggleston
Toby Eggleston
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Late yesterday, the ATO has finalised a Practical Compliance Guideline (PCG) outlining its approach to the application of the franking credit integrity rule for equity funded dividends.

Background

As a brief refresher, the franking credit integrity rule will operate to treat dividends paid by a company as 'unfrankable' where the dividend is not consistent with past practice and it is reasonable to conclude that the principal effect, and a more than incidental purpose, of a capital raising (either by the company or another entity) was to fund, directly or indirectly, a substantial part of the dividend.

We have previously published a Tax Insight article on the ATO's draft PCG (released in December last year) which is available here. As a reminder, a PCG does not have the operation of law but it is used by the ATO as the basis for applying compliance resources, depending on whether the arrangement is considered to be in the Green Zone (low risk) or the Red

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