Refunds of franking credits - Tax basics for non-profit organisations

This information is part of our guide Tax basics for non-profit organisations. The information has been updated with changes that have occurred since the publication was released in June 2011.

Franking credits attached to franked dividends received by the following organisations may be refundable, provided the eligibility criteria are met:

• entities that are endorsed as exempt from income tax
• deductible gift recipients (DGRs)
• developing country relief funds
• exempt institutions that are eligible for a refund under a Commonwealth law other than the income tax law.

Franking credits arise for shareholders when certain Australian-resident companies pay income tax on their taxable income and distribute their after-tax profits by way of franked dividends. These franked dividends have franking credits attached. Franked dividends are received either directly as a shareholder or indirectly as a beneficiary of a trust.

Organisations that receive a dividend from a New Zealand company with Australian franking credits attached to it will be able to obtain a refund of those credits, if they would have been able to had the dividend been paid by an Australian company.

New Zealand franking credits cannot be claimed. If the New Zealand company that paid the dividend has not specified that the franking credit is Australian, you should contact the company to work out whether the franking credit is an Australian or New Zealand franking credit. In most cases, if it is not specified as Australian, it will be a New Zealand franking credit.

To be eligible for a refund of franking credits, a non-profit organisation must have an ABN, be a resident and satisfy at least one of the following:

• be a registered charity endorsed by us to access income tax exemption
• be endorsed by us as an income tax exempt fund
• be endorsed by us as a DGR in its own right
• be specifically named as a DGR in the Income Tax Assessment Act 1997.

Public funds declared by the Treasurer to be a developing country relief fund are also eligible for a refund of franking credits.

For more information about franking credits, refer to Refund of franking credits - Endorsed income tax exempt entities and deductible gift recipients (NAT 6716).