Manipulating dividends, franking credits and tax

[Sunder]

Just a question I had never thought about, because I used to mostly play with CFDs... But recently, I was wondering why this would not work:

1. Obtain a tax status so that your trading is treated as a business rather than an investment - i.e. you can claim capital losses as income losses.

2. Buy a share just prior to it paying a dividend.

3. Wait for it to pay the fully franked dividend. Usually when it pays a dividend, it falls by roughly what the dividend was.

4. Sell the share and claim it as a trading loss - For most of us that would be 42c

5. Declare the dividend as income - again at 42c, but less the 30c franking credit.

You in effect made no money, but you got just got 30c in tax back.

Is this a legitimate way to reduce tax? Am I missing something?

 

[Sunder]

Okay, will have to answer my own question. It is done, and it's called Dividend yield play, and you have to hold the shares for 45 days, increasing the risk of a fall larger than the dividend

 

[skyQuake]

Okay, will have to answer my own question. It is done, and it's called Dividend yield play, and you have to hold the shares for 45 days, increasing the risk of a fall larger than the dividend

u mean 30% not 30c?
If you're claiming less than $5k worth of franking credits u dont need to abide by the 45day rule.

 

[Sunder]

u mean 30% not 30c?
If you're claiming less than $5k worth of franking credits u dont need to abide by the 45day rule.

Yes I did mean that. Sorry.

With the trading capital I have, $5k in franking credits would be optimistic, so I could start and practice with this amount.

Quick question though - As there anywhere you can get a list of announcement dates for all companies on the ASX? The best I can find is the ASX search engine, but that lists all announcements, not just dividend announcements.

Cheers.

Ken.

 

[awg]

better double check, preferably with a good accountant

isnt their something in ATO regs that prevents imputation credits due to "washing" (their description)?

Not sure if it is soley tied up with the 45 day rule. (which is actually a 47 day rule)

yes their is somewhere that shows upcoming div anns, but cant remember at the sec, sorry

try yr broker website?

 

[jancha]

u mean 30% not 30c?
If you're claiming less than $5k worth of franking credits u dont need to abide by the 45day rule.

Hi skyquake
Are you saying if i had bought 30,000 shares in Telstra today (ex div of 14c tomorrow) it would still be 100% fully franked if sold the following week?

 

[skc]

Just check with your CFD provider as according to the PDS they may be entitled to debit the franking credit amount from you when a stock goes Ex.

Hasn't happened to me yet and I wonder under what circumstances they will choose to do that. Probably something to do with their stock lending arrangement?

 

[awg]

Hi skyquake
Are you saying if i had bought 30,000 shares in Telstra today (ex div of 14c tomorrow) it would still be 100% fully franked if sold the following week?

thats what the ATO guidelines say, so long as yr total franking credits are less than $5k.

NOT advice, DYOR, check the ATO stuff online or phone them etc etc

addition: cfds are competely different to shares re imp credits.

 

[skyQuake]

thats what the ATO guidelines say, so long as yr total franking credits are less than $5k.

NOT advice, DYOR, check the ATO stuff online or phone them etc etc

addition: cfds are competely different to shares re imp credits.

http://www.ato.gov.au/print.asp?doc=/content/8651.htm
The way I read it suggests that it does

Also, wiki
http://en.wikipedia.org/wiki/Dividend_imputation

 

[awg]

Quick question though - As there anywhere you can get a list of announcement dates for all companies on the ASX? The best I can find is the ASX search engine, but that lists all announcements, not just dividend announcements.

Cheers.

Ken.

Commsec have an "upcoming dividends" page, locate via sitemap

Other brokers should have the same