The Australian Taxation Office (ATO) has announced it will contact SMSF trustees who have fallen foul of the dividend stripping arrangements as defined in Taxpayer Alert 2015/1 (TA 2015/1), allowing them to correct the tax positions of their funds without penalty.
To rectify the dividend stripping arrangements, SMSF trustees have been given the option of either self-amending the SMSF annual returns in question or contacting the regulator to make a voluntary disclosure regarding the fund’s circumstances.
“We recognise the importance of preserving the assets which SMSFs hold to fund retirement incomes, hence we are only seeking to unwind the divided stripping arrangements that SMSFs may have in place,” the ATO said in a statement on its website.
“Trustees who have implemented an arrangement substantially similar to the one described in TA 2015/1 and its addendum and who choose to self-amend won’t be subject to administrative penalties.
“However, interest charges may apply.”
While the regulator has stipulated reversing dividend stripping arrangements without penalty will only apply to those circumstances set out in TA 2015/1, it is still willing to adopt a conciliatory approach to other dividend stripping situations as well.
“Trustees who are not eligible for this offer are encouraged to contact us so we can work together to resolve the issues with consideration of reduced penalties in accordance with our remission guidelines,” the ATO said.
“We recognise that some arrangements may look right and trustees think the advice they have received is sound, but there may still be underlying problems such as those identified in TA 2015/1.
“We don’t believe trustees should be harshly punished when you think you have done the right thing.”
Trustees wanting to self-amend their situation have been instructed to remove the franking credits from the SMSF annual return relating to the years in which the stripping took place.
Further, they have been told not to claim franking credits resulting from dividend stripping arrangements for 2015, if the fund’s annual return is yet to be lodged, and subsequent years.
Dividend stripping is where shareholders of a private company, who are also SMSF members usually approaching retirement, transfer the ownership of the stocks to the super fund, enabling the individuals to avoid personal tax as well as allowing the fund to claim a refund from the ATO for the value of the franking credits as the transferred shares are supporting pensions that are exempt from tax.