Tax and Superannuation Laws Amendment (2014 Measures No. 2) Act 2014 (68 of 2014)

Schedule 3   Preventing distribution washing

Part 1   Main amendments

Income Tax Assessment Act 1997

3   After section 207-155

Insert:

207-157 Distribution washing

(1) This section applies to a *franked distribution received by a *member of a *corporate tax entity on a *membership interest (the washed interest ) if:

(a) the washed interest was acquired after the member, or a *connected entity of the member, disposed of a substantially identical membership interest; and

(b) a corresponding franked distribution is made to the member, or the connected entity, on the substantially identical interest.

Further requirement for connected entities

(2) However, if the entity that disposed of the substantially identical interest was a *connected entity of the member, this section does not apply to the *franked distribution unless:

(a) it would be concluded that the disposal took place wholly or partly because there was an expectation that the acquisition would, or would be likely to, take place; or

(b) it would be concluded that the acquisition took place wholly or partly because there was a belief that the disposal had taken place.

Substantially identical interests

(3) Without limiting paragraph (1)(a), for the purpose of that paragraph a *membership interest is substantially identical to the washed interest if it is any one or more of the following:

(a) fungible with, or economically equivalent to, the washed interest;

(b) a membership interest in the same *corporate tax entity as the washed interest and of a class that is the same as, or not materially different from, the washed interest;

(c) a membership interest in the same corporate tax entity as the washed interest and of a class that is exchangeable at a fixed rate for an interest of the same class as the washed interest;

(d) a membership interest in another corporate tax entity that holds predominantly membership interests that are covered by any of the preceding paragraphs;

(e) a membership interest in another corporate tax entity that is exchangeable at a fixed rate for interests that are covered by any one or more of paragraphs (a) to (c).

Exception for individuals who are small holders

(4) Despite subsection (1), this section does not apply to a *franked distribution made to an individual in an income year if the sum of the *tax offsets to which the individual would be entitled, worked out on the basis mentioned in subsection (5), is $5000 or less.

(5) Work out the sum of the *tax offsets:

(a) disregarding this Subdivision, to the extent it applies to the individual; and

(b) not disregarding this Subdivision, to the extent it applies to any other entity through which a *franked distribution *flows indirectly to the individual.