Some people forget the ATO's holding rule and forgo their franking credits...
You might not be entitled to claim a franking tax offset
Your entitlement to a franking tax offset may be affected by:
- the holding period rule
- the related payments rule
- the dividend washing integrity rule.
The holding period rule and the related payments rule prevent you from claiming the franking credit even if a dividend is accompanied by a dividend statement advising that there is a franking credit attached to the dividend.
Your entitlement to a franking tax offset can also be affected if:
- you, or your company, undertake a dividend streaming or stripping arrangement, or
- you enter into a scheme to get franking credits (referred to as franking credit trading).
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Holding period rule
The holding period rule requires you to continuously hold shares ‘at risk’ for at least 45 days (90 days for certain preference shares) to be eligible for the franking tax offset. However, under the small shareholder exemption this rule does not apply if your total franking credit entitlement is below $5,000, which is roughly equivalent to receiving a fully franked dividend of $11,666 (based on the current tax rate of 30% for companies).
This means that you must continuously own shares ‘at risk’ for at least 45 days (90 days for certain preference shares) not counting the day of acquisition or disposal, to be eligible for any franking tax offset.
Days on which you have 30% or less of the ordinary financial risks of loss and opportunities for gain from owning the shares cannot be counted in determining whether you hold the shares for the required period.
The financial risk of owning shares may be reduced through arrangements such as hedges, options and futures.
If you acquire shares or an interest in shares and you have not already satisfied the holding period rule before the day on which the shares become ex-dividend, the holding period rule commences on the day after the day on which you acquired the shares or interest. The shares become ex-dividend on the day after the last day on which acquisition of the shares will entitle you to receive the dividend. You must hold the shares or interest for 45 days (90 days for certain preference shares) excluding the day of disposal. For each of these days you must have 30% or more of the ordinary financial risks of loss and opportunities for gain from owning the shares or interest.
You have to satisfy the holding period rule once only for each purchase of shares. You are then entitled to the franking credits attached to those shares, unless the
related payments rule applies.
(20min delay)