Business taxation Large business SME & family business

Capital raised for the purpose of funding franked distributions

Published Date: 20 Feb 2024


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Capital raised for the purpose of funding franked distributions

The Tax Institute welcomes the opportunity to make a submission to the Australian Taxation Office (ATO) in relation to its consultation paper titled ‘Capital raised for the purpose of funding franked distributions’ (Consultation Paper).

In the preparation of this submission, we have consulted with members of our National Large Business and International Technical Committee and National Small and Medium Enterprises Technical Committee to prepare a considered response that represents the views of the broader membership of The Tax Institute.

The Consultation Paper concerns the application of a new integrity provision in section 207-159 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). The new integrity provision was introduced by the Treasury Laws Amendment (2023 Measures No.1) Act 2023, and supported by the accompanying explanatory memorandum (EM) and supplementary explanatory memorandum (supplementary EM).

The new integrity provision raises concerns regarding the scope and proper application of section 207-109 of the ITAA 1997. The Tax Institute is of the view that these concerns require guidance from the ATO to ensure that rules operate as intended, while also providing certainty to arrangements that are not within its scope, or the scope of ATO Taxpayer Alert TA 2015/2: Franked distributions funded by raising capital to release franking credits to shareholders (TA 2015/2).

We consider that there are several key areas that require guidance, including the Commissioner’s views on the application of section 207-159 to:

  • private groups with minimal or no distribution history;
  • dividend reinvest plans (DRPs);
  • transactions concerning mergers and acquisitions (M&A) between unrelated parties;
  • family or commercial dealings of a private group;
  • capital raised for general purposes; and
  • employee share schemes.

We also consider that there are concepts contained in section 207-159 that require detailed guidance and explanation from the Commissioner to ensure that taxpayers understand their obligations and are able to effectively plan their commercial decisions. These include:

  • what constitutes a ‘substantial part’ of the distribution;
  • what constitutes a normal commercial practice in the context of a DRP; and
  • other relevant considerations that will be taken into account when the Commissioner is considering the application of paragraphs 207-159(2)(f) and 207-159(4)(k).

Further details are contained in Appendix A.

We note that our submission is intended to be a starting point for further conversation and consultation. We consider it important to ensure there is ongoing dialogue between the ATO and the tax profession in relation to areas of guidance that are needed under the new integrity measure. To this end, we would be pleased to continue to work with the ATO in the further development of future guidance and would like to arrange a time for a discussion. Please contact our Senior Counsel – Tax & Legal, Julie Abdalla, on (02) 8223 0058 to arrange a time to workshop the issues further, or to discuss any aspect of our submission.

The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all. In this regard, The Tax Institute seeks to influence tax and revenue policy at the highest level with a view to achieving a better Australian tax system for all.


  • Published On:20 Feb 2024

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Unless expressly stated, opinions are not that of The Tax Institute, which accepts no responsibility for the accuracy of any of the information contained within it.

The Tax Institute
(ABN 45 008 392 372 (PRV14016))


The Tax Institute is a Recognised Tax Agent Association (RTAA) under the Tax Agent Services Regulations 2009. 

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Business taxation Large business SME & family business

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