Private ruling: Dividend washing
Published: February 2015
Ruling period: Income Tax Year ended 30 June 2011 | Income Tax Year ended 30 June 2012 | Income Tax Year ended 30 June 2013
Date scheme commenced: You are the trustee of a self-managed superannuation fund (the Super Fund).

Ruling: Q1: Will the Commissioner make a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit is to arise in respect of a distribution that is made to you under the scheme as set out in this ruling? | A1: Yes

Relevant facts and circumstances: You are the trustee of a self-managed superannuation fund (the Super Fund). You hold investments including shares listed on the Australian Securities Exchange (ASX). Generally you are entitled to franking credits attached to franked dividends you receive. During the income tax years ended 30 June 2011, 30 June 2012 and 30 June 2013, you, via your broker, entered into several trades in relation to different securities. Your broker purchased and sold numerous securities on the ordinary market on the ASX on your behalf. Your investment strategy included selling shares held on an ex-dividend basis (Parcel A) and then purchasing similar or same number of shares (Parcel B) on the ASX Special Market on a cum-dividend basis (that is with an entitlement to the recently announced dividend after the official ex-date). The result of the investment strategy is that: • You received dividends from Parcel A and Parcel B. • The dividends received from Parcel B were less than the cost incurred to purchase Parcel B (that is the difference between the consideration received from Parcel A and the amount paid for Parcel B). • Without the additional franking credit obtained the trades under the investment strategy results in an overall loss. Other relevant matters You are not required to make a related payment and will not make any related payments in relation to the dividends. Assumptions 1. The relevant shares will be held at risk for at least 45 days before they are disposed. 2. You will have a 'net position' of at least 30% of the risks and opportunities in respect of all relevant shares. 3. There are no days on which you have materially diminished risk of loss or opportunities for gain in respect of the relevant shares.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 44 | Income Tax Assessment Act 1936 former section 160APHI | Income Tax Assessment Act 1936 section 177D | Income Tax Assessment Act 1936 section 177EA | Income Tax Assessment Act 1997 Division 67 | Income Tax Assessment Act 1997 section 67-25 | Income Tax Assessment Act 1997 section 204-30 | Income Tax Assessment Act 1997 paragraph 207-145(1)(b) | Income Tax Assessment Act 1997 Subdivision 207-A | Income Tax Assessment Act 1997 Subdivision 207-F | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Detailed Reasoning - Application of Division of 207 of the ITAA 1997: The general rule in relation to the receipt of franked dividends, as set out in Subdivision 207-A of the Income Tax Assessment Act 1997 (ITAA 1997), is that for the income year in which the distribution is made, an entity that receives a franked distribution: • includes in their assessable income the amount of the franking credit on the distribution. This is in addition to any other amount included in the recipient's assessable income in relation to the distribution itself (i.e. in addition to the amount of the dividend itself under section 44 of the Income Tax Assessment Act 1936 (ITAA 1936)). • is entitled to a tax offset equal to the franking credit. However, the effect of these general rule is nullified by the operation of section 207-145 of Subdivision 207-F of the ITAA 1997. If a franked distribution is made to an entity in one or more of the circumstances outlined in that section, then that entity will not include the franking credit on distribution in its assessable income and is not entitled to a tax offset because of the distribution. Pursuant to paragraph 207-145(1)(b) of the ITAA 1997, one of the circumstances in which this can happen is if the Commissioner has made a determination under paragraph 177EA(5)(b) of the ITAA 1936 that no imputation benefit is to arise in respect of a franked distribution. | Detailed Reasoning - General anti-avoidance rules and the application of section 177EA of the ITAA 1936: Section 177EA of the ITAA 1936 is a general anti-avoidance rule that safeguards the operation of the imputation system. The purpose of section 177EA is to protect the imputation system from abuse and ensure that the benefits of the imputation system flow to the economic owner of the share which is the source of the franked distribution. Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 3) 1998 (Explanatory Memorandum) that accompanied the introduction of section 177EA further explains that: 8.5 Two of the underlying principles of the imputation system are, firstly, that the benefits of imputation should only be available to the true economic owners of shares, and only to the extent that those taxpayers are able to use the franking credits themselves and, secondly, that tax paid at the company level is in broad terms imputed to shareholders proportionately to their shareholdings. 8.6 Franking credit trading schemes allow franking credits to be inappropriately transferred by, for example, allowing the full value of franking credits to be accessed without bearing the economic risk of holding the shares. These schemes undermine the first principle. 8.7 Companies can also engage in dividend streaming (i.e. the distribution of franking credits to select shareholders), which undermines the second principle by attributing tax paid on behalf of all shareholders to only some of them. Generally this entails the streaming of franking credits to taxable residents and away from non-residents and tax-exempts. 8.8 The Bill introduces a general anti-avoidance rule and anti-streaming measures to restore these underlying principles of the imputation system. Section 177EA of the ITAA 1936 can apply where a relevant taxpayer would receive or could reasonably be expected to receive an imputation benefit, and other conditions specified in subsection 177EA(3) of the ITAA 1936 are satisfied. Where these conditions are satisfied, the Commissioner may make a determination under subsection 177EA(5) of the ITAA 1936 with the effect of either: • denying the imputation benefit on the distribution that is made, or that flows indirectly, to the relevant taxpayer; or • imposing franking debits or exempting debits on the distributing entity franking account. Section 177EA of the ITAA 1936 will apply if the following conditions in subsection 177EA(3) of the ITAA 1936 are satisfied:: (a) there is a scheme for a disposition of membership interests, or an interest in membership interests, in a corporate tax entity; and (b) either: (i) a frankable distribution has been paid, or is payable or expected to be payable, to a person in respect of the membership interests; or (ii) a frankable distribution has flowed indirectly, or flows indirectly or is expected to flow indirectly, to a person in respect of the interest in membership interests, as the case may be; and (c) the distribution was, or is expected to be, a franked distribution or a distribution franked with an exempting credit; and (d) except for this section, the person (the relevant taxpayer ) would receive, or could reasonably be expected to receive, imputation benefits as a result of the distribution; and (e) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain an imputation benefit. The application of each of the above paragraphs in subsection 177EA(3) of the ITAA 1936 to a particular scheme depends upon a careful weighing of all the relevant facts and surrounding circumstances. Each of the conditions in paragraphs 177EA(3)(a) to 177EA(3)(d) of the ITAA 1936 is considered below. | Detailed Reasoning - Paragraph 177EA (3)(a) There is a scheme for a disposition of membership interests: The term 'scheme for a disposition' is defined in subsection 177EA(14) of the ITAA 1936. The term has an inclusive meaning by reference to a scheme that involves any of the matters set out in paragraphs 177EA(14)(a) to 177EA(14)(f) of the ITAA 1936. In particular, paragraph 177EA(14)(b) of the ITAA 1936 includes a scheme that involves entering into any contract, arrangement, transaction or dealing that changes or otherwise affects the legal or equitable ownership of the membership interests or interest in membership interests. In your case, your purchase of the particular shares in a company on a cum-dividend basis on the same day that you disposed of the same or similar number of shares in that company on an ex-dividend basis is a 'scheme for a disposition' of membership interests as the legal ownership of the shares in question has changed. Paragraph 177EA(3)(a) of the ITAA 1936 is thus satisfied. | Detailed Reasoning - Paragraph 177EA(3)(b) A frankable dividend is paid in respect of the membership interests: You are able to receive dividends and associated franking credits in respect of the relevant shares . Your first entitlement to receive franked dividends occurred in respect of the membership interests you had in the shares that you sold on an ex-dividend basis. You then purchased further shares in the same company on the Special Market on a cum-dividend basis which entitled you to additional franked dividends. Paragraph 177EA(3)(b) of the ITAA 1936 is satisfied as a frankable distribution has been paid to you in respect of the relevant shares. | Detailed Reasoning - Paragraph 177EA(3)(c) The distribution was, or is expected to be, a franked distribution: As outlined in relevant facts and circumstances the distributions received in respect of the relevant shares you held were franked distributions. Paragraph 177EA(3)(d) The relevant taxpayer would receive or could reasonably be expected to receive, an imputation benefit as a result of the distribution Subsection 177EA(2) of the ITAA 1936 provides that any expression used in section 177EA of the ITAA 1936 that is defined in the ITAA 1997 has the same meaning as in the ITAA 1936. Subsection 995-1(1) of the ITAA 1997 provides that 'imputation benefit' has the meaning given by subsection 204-30(6) of the ITAA 1997. Subsection 204-30(6) of the ITAA 1997 provides that a member of an entity receives an imputation benefit as a result of a distribution if: (a) the member is entitled to a tax offset under Division 207 of the ITAA 1997 as a result of the distribution; or (b) an amount would be included in the member's assessable income as a result of the distribution because of the operation of section 207-35 of the ITAA 1997; or (c) a franking credit would arise in the franking account of the member as a result of the distribution; or (d) an exempting credit would arise in the exempting account of the member as a result of the distribution; or (e) the member would not be liable to pay withholding tax on the distribution, because of the operation of paragraph 128B(3)(ga) of the ITAA 1936, or (f) the member is entitled to a tax offset under section 210-170 of the ITAA 1997 as a result of the distribution. As outlined under the heading Application of Division of 207 of the ITAA 1997, absent the operation of section 177EA of the ITAA 1936, you are entitled to a tax offset under Division 207 of the ITAA 1997 as a result of the distributions made to you in respect of the relevant shares. Therefore this condition is satisfied. | Detailed Reasoning - Paragraph 177EA(3)(e) The scheme is entered into for a purpose of enabling the relevant taxpayer to obtain an imputation benefit: Paragraph 177EA(3)(e) of the ITAA 1936 requires a conclusion, having regard to the 'relevant circumstances' of the scheme, that the person, or one of the persons who entered into or carried out the scheme or any part of the scheme, did so for a purpose of enabling the relevant taxpayer to obtain an imputation benefit. The purpose does not need to be the dominant purpose, but it must be more than an incidental purpose. Subsection 177EA(17) of the ITAA 1936 provides the 'relevant circumstances' that are to be considered in drawing any conclusion of purpose, including the eight factors listed in paragraph 177D(b) of the ITAA 1936. However, subsection 177EA(17) of the ITAA 1936 does not provide an exhaustive list of relevant circumstances. The matters listed in subsection 177EA(17) of the ITAA 1997 will now be considered as they relate to your situation. | Detailed Reasoning - Paragraph 177EA(17)(a): Paragraph 177EA(17)(a) of the ITAA 1936 refers to the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding the relevant shares. Your exposure to the relevant shares over the course of the share trading arrangement effectively constitutes an exposure to a single parcel for each relevant share. Each parcel is sold (the ex-dividend parcel) and repurchased (the cum-dividend parcel) on the same day such that you are only exposed to price movements for what is effectively a single parcel of shares. Conversely, the nature of the arrangement allows you to benefit from the dividend and associated franking credits in respect of both parcels of the relevant shares. This is contrary to one of the basic tenets of the imputation system as provided in the Explanatory Memorandum that accompanied the introduction of section 177EA of the ITAA 1936, which states that the benefits of imputation should only be available to the true economic owners of shares. Generally, the greater the risk borne by the taxpayer receiving the franking credit benefit, the less likely it is that the requisite purpose in paragraph 177EA(3)(e) of the ITAA 1936 is present (paragraph 8.82 of the Explanatory Memorandum). In the present circumstances it is considered that a scheme which effectively exposes you to the risks of ownership on a single parcel of the relevant shares, whilst actually obtaining imputation benefits in respect of two parcels of the relevant shares, points heavily towards a conclusion as to the existence of the requisite purpose. Accordingly, this matter supports a finding of the requisite purpose under paragraph 177EA(3)(e) of the ITAA 1936. | Detailed Reasoning - Paragraph 177EA(17)(b): Paragraph 177EA(17)(b) refers to whether the relevant taxpayer would, in the year of income in which the distribution is made, derive a greater benefit from franking credits than other entities who hold membership interests in the company. A superannuation entity is subject to an ordinary tax rate of 15%. The expression 'greater benefit from franking credits' is defined in section 995-1 of the ITAA 1997 as having a meaning affected by subsections 204-30(7) and 204-30(8) of the ITAA 1997. These subsections provide that a favoured member of an entity derives a greater benefit from franking credits if the other member is a foreign resident. Whilst the arrangement takes place on a public exchange and it is thus difficult to identify the seller of the cum-dividend shares, it is considered that the only rationale that would lead to a supply of cum-dividend shares in the Special Market is from investors or entities who are unable to utilise the impending receipt of imputation benefits under the applicable provisions of the income tax laws, and those investors or entities were inadvertently or otherwise not in a position to dispose of their shares prior to the shares becoming 'ex-dividend'. Further, such investors who sell their shares on a cum-dividend basis may be able to realise a slightly higher sale price on the Special Market which may be due to the value of franking credits that will be attached to the announced dividend. In this context, it is considered that a significant source of the cum-dividend shares would be non-resident holders. The reasons for this are: (a) they are generally only able to derive a limited advantage from the receipt of an imputation credit, and (b) they are also generally not subject to Australian capital gains tax on the disposal of a publicly listed share. Further, as the super fund is an entity taxed at a rate of 15% it receives a refundable tax offset for franking credits at the rate of 30% for fully franked dividends. Therefore the super fund would derive a greater benefit from franking credits than a non-resident holder who sold their shares on the cum-dividend market. Accordingly paragraph 177EA(17)(b) is satisfied. | Detailed Reasoning - Paragraph 177EA(17)(c): Paragraph 177EA(17)(c) of the ITAA 1936 refers to whether, apart from the scheme, the corporate tax entity would have retained the franking credits or exempting credits or would have used the franking credits or exempting credits to pay a franked distribution to another entity referred to in paragraph (b). In the present case, the arrangement is not considered likely to influence the behaviour of the corporate tax entity making the franked distribution. Thus this relevant circumstance is not indicative as to the existence of the relevant purpose. | Detailed Reasoning - Paragraph 177EA(17)(d): Paragraph 177EA(17)(d) refers to whether, apart from the scheme, a franked distribution would have flowed indirectly to another entity referred to in paragraph 177EA(17)(b). Again, there is no evidence to suggest that a franked distribution would have flowed indirectly to another entity. Thus as with paragraph 177EA(17)(c), the matter in paragraph 177EA(17)(d) does not point towards the requisite purpose. | Detailed Reasoning - Paragraph 177EA(17)(e): Paragraph 177EA(17)(e) states: if the scheme involves the issue of a non-share equity interest to which section 215-10 of the Income Tax Assessment Act 1997 applies - whether the corporate tax entity has issued, or is likely to issue, equity interests in the corporate tax entity: (i) that are similar, from a commercial point of view, to the non-share equity interest; and (ii) distributions in respect of which are frankable. As the arrangement does not involve the issue of a non-share equity interest, paragraph 177EA(17)(e) is not relevant. | Detailed Reasoning - Paragraph 177EA(17)(f): Paragraph 177EA(17)(f) of the ITAA 1936 refers to whether any consideration paid, given or received by or on behalf of the relevant taxpayer was calculated by reference to the imputation benefit to be received by the relevant taxpayer. According to trades referred to under Relevant facts and circumstances section you purchased parcels of relevant shares on a cum-dividend basis on the Special Market for a price greater than the amount you had just received for the sale of a similar parcel of relevant shares that were ex-dividend even after taking into account the entitlement to the announced dividend; i.e. you paid more for the cum-dividend shares than the sale price of the ex-dividend shares and the value of the announced dividend. In this situation, there will be no contract for sale or agreement outlining how the parties have priced the trades. Rather, you purchased on the Special Market for what it considered to be an acceptable price. However, this does not automatically defeat a conclusion that the benefit of the franking credits that will be attached to the announced dividend was not taken into account by you in making your purchase decision. Viewed objectively, you paid an additional amount for the parcel of relevant shares that were trading on a cum dividend basis. The only advantage this additional payment secures is the right to receive the additional dividend and franking credit. In an objective sense, it is unlikely that the total capital sum (the difference between value of the shares sold ex-dividend and the value of the shares purchased cum-dividend basis) would be outlaid to 'purchase' an income entitlement (dividend entitlement on the cum-dividend shares) less than the capital sum. In this regard, it is considered that the consideration you gave for the purchase of the relevant shares on a cum-dividend basis took into account the value of imputation benefit to be received, as it is only after taking into account the imputation benefit that the pricing of the trades makes any commercial sense. Accordingly, the circumstance in paragraph 177EA(17)(f) of the ITAA 1936 points strongly towards the presence of the requisite purpose. | Detailed Reasoning - Paragraph 177EA(17)(g): Paragraph 177EA(17)(g) refers to whether a deduction is allowable or a capital loss is incurred in connection with a distribution that is made or that flows indirectly under the scheme. Pursuant to the arrangement, you, as trustee of the Super Fund, acquired the relevant shares on the Special Market. This involves paying consideration for the shares that included a consideration of the value of the dividend as evidenced by the difference in the ex-dividend price and the cum-dividend price. After the dividend has been paid on the cum-dividend shares (or the cum-dividend shares themselves commence trading ex-dividend) the value of the shares will be reduced by the approximate value of the dividend. This may potentially give rise to a capital loss in the future when the shares are disposed. However, it is conceded that such a disposal and realisation of the potential capital loss is not an integral part of the arrangement. Thus, the consideration in paragraph 177EA(17)(g) does not indicate a purpose of enabling the relevant taxpayer to obtain an imputation benefit. | Detailed Reasoning - Paragraph 177EA(17)(ga): Paragraph 177EA(17)(ga) of the refers to whether a distribution made under the scheme is sourced from unrealised or untaxed profits. The Super Fund is a passive recipient of a dividend paid. The source of the distribution is not relevant to the present arrangement. Accordingly, this characteristic in paragraph 177EA(17)(ga) does not indicate a purpose of enabling the Trust to obtain an imputation benefit. | Detailed Reasoning - Paragraph 177EA(17)(h): Paragraph 177EA(17)(h) refers to whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is equivalent to the receipt by the relevant taxpayer of interest or of an amount in the nature of, or similar to, interest. The dividends received in the present arrangement are ordinary dividends sourced in the profits of the paying entity. As it would appear that distributions on the relevant shares in substance do not give rise to an interest like return, the matter in paragraph 177EA(17)(h) does not indicate requisite purpose is present. | Detailed Reasoning - Paragraph 177EA(17)(i): Paragraph 177EA(17)(i) refers to the period for which the relevant taxpayer held membership interests, or had an interest in membership interests in the corporate tax entity. A certain extent your exposure to the shares in question does not change over the long term. That is, in the present situation, the fund would be exposed to the relevant shares in the long term; it would just be a different (but comparable) parcel of the relevant shares that is purchased and sold. This 'churning' of comparable parcels around the date of the determination of dividend entitlements in respect of the relevant shares is suggestive of a trading strategy which is motivated by something other than the objective of investing for the long term. This factor points strongly towards the presence of the requisite purpose. | Detailed Reasoning - Paragraph 177EA(17)(j): Paragraph 177EA(17)(j) of the ITAA 1936 requires an examination of any matters referred to in former subparagraphs subparagraphs 177D(b)(i) to (viii) 1 : (i) the manner in which the scheme was entered into or carried out; (ii) the form and substance of the scheme; (iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; (iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; (v) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; (vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; (vii) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out; and (viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi); Of these factors former subparagraphs 177D(b)(i) to 177D(b)(v) are considered the most relevant. 2 Subparagraph 177D(b)(i) 3 In the context of subparagraph 4 177D(b)(i), the High Court said in FCT v. Spotless Services (1996) 34 ATR 183 at 191; 96 ATC 5201 at 96 ATC 5209 that: the terms ``manner'' and ``entered into'' are not given any restricted meaning. ``Manner'' includes consideration of the way in which and method or procedure by which the particular scheme in question was established. Whilst the trades take place on the ASX, the purchase of the cum-dividend shares does not take place on the ordinary market. In the ordinary course of trading on the ASX the terms cum-dividend and ex-dividend are mutually exclusive in the sense that a share is cum-dividend until it goes ex-dividend. It is only in a 'Special Market' that a share can be acquired cum-dividend after the ex-dividend date. Thus, the manner in which the trades takes place on the Special Market would suggest that you sourcing the imputation benefit is indicative that tax considerations are a considerable driver as opposed to being just an ordinary trade. It is considered that the manner in which the scheme is entered into is indicative of the requisite purpose. Subparagraph 177D(b)(ii) 5 In respect of subparagraph 6 177D(b)(ii), Callinan J stated in Federal Commissioner of Taxation v. Hart (2004) ATC 4599 at 2004 ATC 4625: The reference in s177D(b)(ii) to the 'substance of the scheme' invites attention to what in fact the taxpayer may achieve by carrying it out, that is to matters whether forming part of, or not to be found within the four corners of an agreement or an arrangement. They also require that substance rather than form be the focus. In your case, the substance of the arrangement is that the Super Fund has a continuing investment in the relevant shares constituted by the original ex-dividend shares and the exact same number of replacement cum-dividend shares. That is in substance you hold a total of 676,118 relevant shares (of various companies) during the three income years (2011 to 2013). By way of contrast, the legal form of the arrangement is for the Super Fund to hold 338,059 relevant shares in two different parcels, with both parcels conferring an entitlement to dividends and franking credits during the three income years (2011 to 2013). This disparity between the form and substance of the scheme is indicative of the requisite purpose. Subparagraph 177D(b)(iii) 7 The timing of the scheme is very precise. The scheme can only be achieved on the days when the ASX allows the Special Market to operate, such that shares can be sold ex-dividend in the ordinary market and purchased cum-dividend on the Special Market. To purchase the shares earlier would involve double the outlay of capital (in that you would have to remain the owner of the ex-dividend shares whilst purchasing the cum-dividend shares). Further, if a taxpayer owned both parcels of shares at the same time and then disposed of the ex-dividend shares, the application of the 'last-in first-out' rule in former section 160APHI of the ITAA 1936 would mean that the taxpayer would not be capable of being treated as a qualified person in respect of the cum-dividend shares, which they would be taken to have disposed for the purposes of the holding period rule. Subparagraph 177D(b)(iv) 8 With respect to subparagraph 177D(b)(iv), but for the operation of section 177EA of Part IVA of the ITAA 1936, it is likely that you would receive a refundable tax offset in respect of the dividends received on all the relevant shares. Subparagraph 177D(b)(v) 9 With respect to subparagraph 177D(b)(v), your financial position will be improved through the receipt of the refundable tax offsets. Subparagraph 177D(b)(vi) to 177D(b)(viii) 10 The remaining circumstances in paragraph 177D(b) are not considered relevant in the present matter. | Detailed Reasoning - Conclusion: As stated, the matters listed in subsection 177EA(17) are not exhaustive of the 'relevant circumstances' which would support a conclusion that the requisite purpose of obtaining an imputation benefit existed. Further, paragraph 177EA(3)(e) does not require a conclusion that the dominant purpose was to obtain imputation benefits. It will be sufficient that, having regard to all relevant circumstances, the investor or one of the persons who entered into or carried out the scheme (including the Super Fund) did so for a purpose (other than an incidental purpose) of enabling the Super Fund to obtain an imputation benefit. Further, it is not necessary that all of the factors listed in subsection 177EA(17) or former paragraph 177D(b) 11 be relevant to the scheme. The "overwhelming weight" of one factor alone may be sufficiently significant to form a conclusion as to purpose. Overall, it is considered that based on the information provided, a reasonable person would conclude, after considering all the relevant circumstances, that the purpose of the scheme of enabling the Super Fund to obtain imputation benefits was more than incidental. The trade would make no sense if the tax considerations were not present. Whilst a counterfactual analysis is not necessary, it is considered that the only counterfactual would be to maintain ownership of the ex-dividend shares. This is what is achieved by the strategy in economic terms when a taxpayer strips away the franking credit benefit. Therefore, on balance, the conditions of section 177EA of the ITAA 1936 are satisfied and consequently the anti-avoidance provisions apply to the arrangement. Thus, the Commissioner would make a determination pursuant to paragraph 177EA(5)(b) of the ITAA that no imputation benefit is to arise in respect of the franked dividend paid in respect of the relevant shares purchased by you on a cum-dividend basis on the Special Market under the arrangement (Parcel B). The effect of such a determination would be that you would not obtain a refund for the tax offset in relation to the franking credits received in respect of the second parcel of shares pursuant to subsection 207-145(1) of the ITAA 1997. 1 The eight factors referred to in former subparagraphs 177D(b)(i) to (viii) are the same as the eight factors in subsection 177D(2), only the reference has changed. Subsection 177D(2) applies to all schemes except for schemes that were entered into, or that were commenced to be carried out (in this case the trades entered into) before 15 November 2012. 2 Similarly of the eight factors in subsection 177D(2), paragraphs 177D(2)(a) to 177D(2)(e) are considered the most relevant for transactions entered into after 15 November 2012. 3 Paragraph 177D(2)(a) for transactions entered into after 15 November 2012. 4 Former subparagraph for transactions entered into after 15 November 2012. 5 Paragraph 177D(2)(b) for transactions entered into after 15 November 2012. 6 Former subparagraph for transactions entered into after 15 November 2012. 7 Paragraph 177D(2)(c) for transactions entered into after 15 November 2012. 8 Paragraph 177D(2)(d) for transactions entered into after 15 November 2012. 9 Paragraph 177D(2)(e) for transactions entered into after 15 November 2012. 10 Paragraph 177D(2)(f) to 177D(2)(h) for transactions entered into after 15 November 2012 11 Subsection 177D(2) for transactions entered into after 15 November 2012