An individual or a corporate tax entity that receives a franked distribution directly must be resident at the time the distribution is paid to be eligible for a franking offset.
The residency tests for individuals and corporate tax entities are:
- for individuals, companies and corporate limited partnerships - must be a resident at the time the distribution is made, and
- for a corporate unit trust or public trading trust - must be a resident unit trust for the year of income in which the distribution is made.
Only Australian resident taxpayers can claim a tax offset for a franking credit attached to a distribution.
The distribution would be exempt for non-residents from withholding tax to the extent that it is franked and therefore exempt from income tax. The unfranked part of the distribution is exempt for non-residents from withholding tax to the extent that is declared to be conduit foreign income.
Generally a non-resident receiving an unfranked dividend, none of which is declared to be conduit foreign income, is subject to withholding tax. If a dividend paid to a non-resident is fully franked or unfranked but wholly declared to be conduit foreign income, there is no obligation to withhold.