A franking credit refund may not be available to an eligible organisation on payment of a franked dividend directly from the company, or indirectly through an entitlement to a franked distribution (for example, through a trust). This is when a transaction related to that payment results in any of the following:
- the organisation obtaining a reduced benefit from the franked dividend (or notional trust amount)
- the organisation, or another entity, providing a benefit or incurring a detriment
- the entity that pays the dividend or trust distribution (or their associate) obtaining an advantage
- failure to pass full, unconditional ownership of property comprising the dividend (or trust distribution) to the organisation at the time of payment.
Franking credit trading rules
Your organisation's entitlement to a franking credit refund may be affected by the holding period rule, the related payments rule or the dividend washing integrity rule. The Commissioner of Taxation may make a determination to deny imputation benefits where your organisation has entered into a scheme for the purpose of obtaining franking credit benefits.
Holding period rule
Under the holding period rule, your organisation must hold shares (or an interest in shares) at risk for at least 45 days (or 90 days for preference shares). If the organisation is under no obligation to make a related payment, this rule only needs to be met once for each purchase of shares (or an interest) subject to the ‘last in-first out’ rules.
Note: the 45-day period (or 90-day period for preference shares) does not include the day your organisation acquired the shares or the day the shares were disposed.
Related payments rule
The related payments rule applies if your organisation has made, or is under an obligation to make, a related payment – that is, to pass on the benefit of a franked dividend to someone else. Under the related payments rule, your organisation must hold shares (or an interest) at risk for at least 45 days (or 90 days for preference shares) during the secondary qualification period. This is to be eligible for a refund of franking credits. This rule must be met for all dividends and distributions where a related payment will be made.
The secondary qualification period means the period starting on the 45th day before, and ending on the 45th day after, the day the shares (or an interest) became ex-dividend (or 90 days before and after if the shares are preference shares).
Dividend washing integrity rule
The dividend washing integrity rule applies to prevent you from claiming franking credits where you have received a dividend as a result of dividend washing.
Dividend washing occurs where:
- you, or an entity connected to you, sell an interest in shares that you hold while retaining the right to a dividend, then
- by using a special ASX trading market, you effectively repurchase an interest in shares, generally in the same company, and receive an entitlement to a second dividend.
If the dividend washing integrity rule applies, you are not entitled to claim the franking credits for the second dividend. However, if your interest in the second parcel of shares exceeds the interest in the first parcel, you may be entitled to claim a portion of these additional franking credits.
Our view is that the general anti-avoidance legislation may be applied to dividend washing transactions not impacted by the integrity rule.
See also:
Information on refund of franking credits 1 July 2014 to 30 June 2015 (NAT 6716)