New measure to combat franked distributions funded by capital raisings

New measure to combat franked distributions funded by capital raisings


The Government has announced a new measure in the 2016-17 Mid-Year Economic and Fiscal Outlook to prevent the distribution of franking credits where a distribution to shareholders is funded by particular capital raising activities.

This new measure is intended to address issues raised by the Tax Office’s Taxpayer Alert 2015/2 regarding arrangements used by companies for the purpose of, or for purposes which include, releasing franking credits or streaming dividends to shareholders.

The ATO have been reviewing arrangements with all or most of the following features:

  • A company with a significant franking credit balance raises new capital from existing or new shareholders, i.e., issuing renounceable rights to shareholders. Shareholders may include large institutional superannuation funds.
  • The company makes franked distributions to its shareholders, at a similar time to the capital raising and a similar amount of capital is raised. This may occur as a special dividend or through an off-market buy-back of shares, where the dividend forms part of the purchase price of the shares.
  • Overall, there is minimal net cash inflow to or outflow from the company; the net asset position of the company remains essentially unchanged but their franking account is significantly reduced, and there is minimal impact on the shareholders (except in some cases they may receive refunds of franking credits, and in the case of buy-backs they may also get improved capital gains tax outcomes.)

The new measure is set to apply to distributions made after 12.00pm (AEDT) on 19 December 2016. The measure has not been enacted and is subject to the normal parliamentary process.

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If you believe the matters discussed above are relevant to your business, please contact Darren Smith of our office to discuss further.


Darren is a Chartered Accountant with extensive experience, including working in the big 4 and medium sized firms before becoming a partner of a city based firm in 2000.

He has gained much experience and has extensive knowledge in providing business and taxation advice, superannuation planning, negotiation of sales and acquisitions of businesses and property development. His client base covers a wide range of industry groups.

Darren works with business owners to grow their businesses and create personal wealth within and outside of their business.


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