Refunding excess franking credits
Generally, Australian-resident members of a corporate entity, such as Individuals and superannuation funds are eligible for a refund if the franking credits allocated to distributions they receive exceed their tax liability. Charities and deductible gift recipients that are exempt from income tax are also entitled to a refund of franking credits attached to their distributions.
Categories of Australian resident members that are eligible for refunds include:
- individuals who receive franked dividends, either directly or through a trust or partnership
- endorsed income tax-exempt charities and deductible gift recipients
- complying superannuation funds, approved deposit funds (ADFs) and pooled superannuation trusts (PSTs)
- life insurance companies and registered organisations (in respect of their superannuation business)
- trustees liable to be assessed, in limited circumstances, under section 99 of the Income Tax Assessment Act 1936.
Example: Individual shareholder
On 11 December 2014, Rodney receives a franked distribution of $700 with $300 franking credits attached. When Rodney does his tax return for the 2016 income year, he includes $1,000 ($700 franked distribution plus $300 franking credits) in his assessable income and is entitled to a tax offset of $300 to reduce his income tax liability.
Taking into account his assessable income and allowable deductions from all sources, Rodney’s basic income tax liability is $200. As his tax offset exceeds his basic income tax liability, he is entitled to a refund of the excess – that is, $100.
End of example
For corporate entities such as companies, the franking credit is not refundable. A tax offset can reduce the entity’s tax liability to nil, but is not refunded if it exceeds the tax liability. However, the entity may convert any excess franking credit tax offsets to a tax loss which may be carried forward to future years.
Claiming a refund
Individuals who have tax offset entitlement for franking credits that exceed their tax payable and who satisfy the anti-avoidance rules are eligible for a refund of the balance of the excess.
Individuals who are required to lodge a tax return will have their refund entitlement determined as part of the income tax return process. They do not have to lodge a separate claim form.
Individuals that are not required to lodge a tax return can lodge an application for a refund of franking credits online, over the phone, or by mail.
Note: Individuals are entitled to a franking tax offset only for those shares that satisfy the relevant anti-avoidance rules. If they cannot claim a refund, they do not include those franking credits in their assessable income (see eligibility details in refunding franking credits – individuals).
Charities and deductible gift recipients apply for the refund by lodging an Application for refund of franking credits – Endorsed income tax exempt entities and deductible gift recipients form.
Complying superannuation funds, ADFs and PSTs apply for the refund by lodging the Fund income tax and regulatory return. The trustee must retain the supporting documents.
Life insurance companies claim the refund as part of the income tax assessment process when completing the Other refundable credits section of the Company tax return.
If an Australian resident member has received a dividend that has Australian franking credits attached from a New Zealand franking company, they may be eligible to claim the Australian sourced franking credits.
Generally, Australian-resident members of a corporate entity are eligible for a refund of excess tax offsets if the franking credits allocated to distributions they receive exceed their tax liability.