The Minister for Revenue and Assistant Treasurer, Peter Dutton MP, today announced improvements to the simplified imputation system.
These improvements will remove both the dividend tainting rules and the rules that deny franking credits when additional tax is paid because of a transfer pricing adjustment.
“Following the removal of the inter‑corporate dividend rebate under the simplified imputation system and the introduction of the consolidation regime, the dividend tainting rules are no longer necessary”, Mr Dutton said.
Those rules will be removed with effect from 1 July 2004.
“The removal of the dividend tainting rules will significantly reduce compliance costs”, Mr Dutton said.
“It will also overcome concerns raised by the business community that those rules are inadvertently triggered by the accounting entries required under the Australian Equivalent of the International Financial Reporting Standards.”
Some minor consequential amendments will be made, firstly, to ensure that amounts paid from tainted share capital accounts continue to be taxed as unfranked dividends.
Also, the general anti‑avoidance rule that targets franking credit trading and dividend streaming schemes will be amended. In determining whether the anti-avoidance measure should be applied, the amendment will allow consideration to be given to whether a franked distribution made under a scheme, was sourced directly or indirectly from unrealised or untaxed profits.
Under the former imputation system, taxpayers who paid additional tax because of a transfer pricing adjustment were denied franking credits. These rules will be removed with effect from 1 July 2002, thus removing a double penalty that had been imposed on Australian companies and their shareholders.
“These changes to improve the simplified imputation system will make it easier for Australian companies to pass on franking credits and further demonstrate how the Government is delivering practical assistance to the business community in Australia,” Mr Dutton said.