Dividend washing

occurs when shareholders seek to claim two sets of franking credits on what is effectively the same parcel of shares. https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Preventing-dividend-washing/
Dividend washing involves arrangements that enable a taxpayer who effectively holds a single parcel of shares to obtain double franking credits. This occurs when an investor, who has access to the Special Market operated by the Australian Securities Exchange, sells shares ex-dividend (seller retaining the dividend with franking credits) and then in 2 days buys cum-dividend shares (ie with dividend rights still attached) in the same company on the Special Market (buyer receiving the dividend with franking credits).
The price paid for shares in this market is usually very close to the price in the normal ex-dividend market, plus the value of the dividend to be paid on the shares. https://www.ato.gov.au/Media-centre/Media-releases/ATO-confirms-dividend-washing-not-allowable-under-tax-law/
The new law will apply from July 1, 2013, to investors who have franking credit tax offset entitlements in excess of $5000. Small shareholders will be excluded. However, experts said that the ATO was relying on a broader anti-avoidance provision to examine share trades which pre-date the new law.
The ATO has been given the go ahead to start chasing investors (including SMSF trustees) after the release of a draft tax determination (TD 2014/D1) which basically outlaws the practice.

Preventing dividend washing 24 March 2014 | Exposure Draft

This draft legislation would amend the tax law to deny an entity the benefits of any additional franking credits that an entity receives as a result of dividend washing.



Example of Dividend Washing
A taxpayer who engaged in dividend washing would sell their shares in the ex-dividend market and buy the same number of shares in the cum-dividend market. They would receive two dividends (one from each parcel of shares) with the attached franking credits.
Assuming that the share had an ex-dividend price of $1.00 and a dividend entitlement of $0.10, their cash flows would be as follows:
Dividend received on original shares: $0.10
Sale of original shares in ex-dividend market: $1.00
Acquisition of new shares in cum-dividend market: ($1.10)
Dividend received on new shares: $0.10.
At the end of the arrangement, the taxpayer has a net cash in-flow of $0.10, but assuming the dividend paid was franked, the taxpayer has received two lots of franking credits (amounting to around $0.08 if the dividends are fully franked). This arrangement was of particular interest to taxpayers who were not immediately assessable on the dividends, but who could still benefit from the franking credits. These included superannuation funds in pension mode, individuals with revenue tax losses and charities.
- See more at: http://www.bdo.com.au/resources/publications/federal-budget-2013/corporate/government-end-dividend-washing#sthash.tlkANgSJ.dpuf