“We believe the drafting in Schedule 5 is unnecessarily broad, making it difficult for companies to practically apply proposed section 207-159 of the Income Tax Assessment Act 1997 (ITAA 1997),” the submission stated.

“The lack of specificity in the provisions and insufficient guidance in the explanatory memorandum (EM) means that companies will be heavily relying on the Australian Taxation Office (ATO) to provide sufficient certainty to enable companies to progress with their capital management strategies.”

The organisations stated that in view of the broad application of the new section, the uncertainty it creates for Australian companies and their shareholders, and the need for ATO guidance (and probably private rulings) to practically apply the new section, the 15 September 2022 application date to distributions is now untenable.

“A number of members expressed concern about the ramifications where proposed section 207-159 applies to render a dividend which has already been paid, unfrankable,” it stated.

“They argue that the tax system should be designed such that a franked dividend can be paid for certainty of tax outcomes both for the dividend-paying company (the dividend triggers a debit to the company’s franking account, and the company must comply with the franking percentage rules which govern the extent to which the dividends can be franked.

“The recipient shareholder (the dividend triggers a franking tax offset, or for a non-resident shareholder, a withholding tax exemption).”

Members point out it would be impossible for shareholders in a widely held company to self-assess whether section 207-159 applies and would rely on the board and management of the dividend-paying company in complying with its legal obligations in paying the dividend.

Additionally, the thought that section 207-159 could be applied years after the dividend is paid was also of great concern to members.

They pointed out there would be difficulties in revising shareholder distribution statements and explaining to clients why the dividend is no longer able to be classified under franked status, as well as amending shareholder assessments or paying withholding tax.