Private ruling: Investment Strategy
Published: April 2015

Ruling: Q1: Is the taxpayer required to include in his assessable income the dividend distribution in relation to shares held under the strategy under section 44 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. As the investor is the holder of the shares held under the strategy they must include in their assessable income dividends that are paid to them by the company in the relevant income year. | Q2: Is the taxpayer required to include in his assessable income the franking credit attached to the dividend distribution in relation to the shares under section 207-20 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes, where an entity makes a franked distribution to another entity (in this case the investor), the assessable income of the taxpayer includes the amount of the franking credit on the distribution; in the income year the distribution was made. | Q3: Is the taxpayer entitled to a tax offset equal to the franking credit attached to the dividend distribution, in relation to the shares, in the income year in which the dividend distribution was made under section 207-20 of the ITAA 1997? | A3: Yes, where the taxpayer satisfies the qualified person's rules under Division 1A of former Part IIAA of the ITAA 1936. Issue 2 | Q4: Will any franked distributions and attached franking credit, in relation shares subject to a securities lending agreement (the SLA shares) entered into by the taxpayer, be attributed to the Lender (and not the taxpayer) under Division 216 of the ITAA 1997? | A4: Yes. As the Securities Lending Agreement entered into by the investor is a "securities lending arrangement" under section 26BC of the ITAA 1936, the distributions in relation to the SLA shares will be attributed to the Lender. Issue 3 | Q5: Will the Commissioner make a determination pursuant to paragraph 177EA(5)(b) of the ITAA 1936 to deny franking credits attached to dividends received by the taxpayer in relation to the shares held under the strategy? | A5: No Issue 4 | Q6: Will section 207-157 of the ITAA 1997 apply to the transactions implemented under the strategy? | A6: No

Relevant facts and circumstances: An investment strategy will be implemented by an investor via their stock broker to increase diversification in the investor's portfolio and/or reweight the portfolio and to take advantage of the "dividend run-up" phenomenon which some shares have a price run-up in the period leading up to the ex-dividend date. The strategy involves the investor entering into a Securities Lending Agreement.