New tax laws to tackle 'dividend washing'

In a move to tackle 'dividend washing' and prevent further government revenue loss, Labor will today release a Treasury discussion paper suggesting three tax law changes effective July 1, The Australian Financial Review reports.

The practice, which allows sophisticated investors to gain two lots of franking credits, costs the government $20 million a year and is likely to increase if the practice is not curbed, the newspaper says. 

Dividend washing is used by foreign investors who are unable to use franking credits so pass them on to local investors instead.

However, tax experts say government intervention could stifle legitimate market activity.

Responses to the paper can be put forward until June 14, the newspaper reports.