Thanks for the replies. So, from reading further, this is a loophole only available to sophisticated investors who have access to a special market operated by the ASX which allows trading, generally for 48 hours after the stock went ex-dividend, on a cum-dividend basis with the share price grossed up to reflect the dividend amount, under a different stock code only available to the sophisticated investors. This also suits foreign share owners who cannot claim franking credits, who can sell ex-dividend shares at a cum-dividend price on this special market.
Using the example in the morning star article (link below) which assumes no brokerage:
Purchase 10,000 shares in ZCF at $5, 45 days before ex-dividend date for $75,000 expecting a dividend of $0.14 per share.
Sell this parcel on ex-dividend date for $50,000 plus now have entitlement to receive dividend cheque of $1,400 plus entitlement to claim franking credits of $600. Total value accrued is $52,000.
I'm just thinking out aloud here to work it out in my head...
Buy parcel on special market for sophisticated investors on cum-dividend basis, 10,000 shares at $51,400. These shares carry a dividend entitlement of $1,400 plus a franking credit of $600. Total value accrued (pricing shares at ex-dividend value on the normal market) is $50,000 (same as initial outlay) plus $1,400 dividend entitlement plus two lots of franking credits ($1200) which equals $52,600. So, at the end of the day, the dividend washing exercise enables the purchaser to claim two lots of franking credits and they come out $600 ahead in this example.
http://www.morningstar.com.au/smsf/article/dividend-washing/6316
http://theconversation.com/a-frank-debate-dividend-washing-and-double-dipping-15136