On the day the company trades ex-dividend, theoretically the share price drops by the amount of the dividend.
In Australia, ordinary external investors are free to buy shares cum-dividend and sell them ex-dividend, and treat the dividend income and capital loss the same as for any other investment.
But schemes involving a deliberate arrangement by a company's owners to avoid tax are addressed by anti-avoidance provisions of Part IVA the Income Tax Assessment Act 1936. Dividend stripping by investors has the general advantages or disadvantages described above, but in addition in Australia there are franking credits attached to dividends under the dividend imputation system.
A typical half-yearly dividend (in 2005) of 2% of the share price would mean an extra 0.85% in franking credits, an amount which might easily be swamped by brokerage and the general risks noted above.
Part IVA is a set of general anti-avoidance measures addressing schemes with a dominant purpose of creating a tax benefit.
Section 177E also applies to related schemes which draw off profits from a company, benefitting its owners, not just to the formal payment of a dividend.