ARTICLE · 20 OCTOBER 2022

Unfrankable dividends sourced from a capital raise

McCullough Robertson

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New exposure draft legislation would provide that dividends sourced from a capital raise cannot be franked.

AustraliaTax

Adria Askin

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Last month the Federal Government published exposure draft legislation, to ultimately legislate that dividends sourced from a capital raise cannot be franked (see here).

Critically, the exposure draft provides for the retrospective amendment of the legislation, such that any transaction dating back to 19 December 2016 will be caught, and the franking credit must be removed. As drafted, it will be irrelevant whether the recipient taxpayer has lodged their income tax return in the intervening period, and the two- or four-year amendment period has expired.

In short, the draft legislation provides for the amendment of Divisions 202 and 207 ITAA97 such that a dividend will be an unfrankable distribution where:

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