The Australian Taxation Office (ATO) released PCG 2024/D4 on 4 December 2025, outlining its compliance approach to the issue of “capital raised for the purpose of funding franked distributions.”

This is related to Schedule 5 of the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023, which addresses changes to franked distributions funded by capital raisings. These amendments apply to distributions made from 28 November 2023, as outlined in section 207-159 of the Income Tax Assessment Act 1997.

The Draft Practical Compliance Guideline (PCG) outlines where it is needed to apply compliance resources in relation to the integrity measure in section 207-159 of the Income Tax Assessment Act 1997. It sets out the framework to assess the level of risk that this provision applies to deny franking credits attached to a distribution.

The integrity measure is intended to discourage arrangements that feature the raising of capital to fund the payment of franked distributions and the release of franking credits in a way that generally does not significantly change the financial position of the entity. It addresses arrangements that are entered into for a purpose (other than an incidental purpose), and with the principal effect, of accelerating the release of franking credits to members of entities in circumstances that cannot be explained by existing distribution practices, and which are typically artificial or contrived.

The integrity measure addresses the concerns raised in Taxpayer Alert TA 2015/2 Franked distributions funded by raising capital to release franking credits to shareholders.

This Guideline will assist taxpayers to understand our compliance approach to those issues. It also applies to corporate tax entities that have made a distribution which purports to be a frankable distribution as defined in section 202-40.

The deadline for submissions on the draft PCG is 31 January 2025.