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  • Small shareholder exemption (from 1 July 1999)

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    The threshold for the small shareholder exemption is to be increased from $2,000 to $5000 from 1 July 1999 under the New Business Tax System (Miscellaneous) Bill (No. 2) 2000 introduced into Parliament on 13 April 2000. Under the small shareholder exemption the holding period rule does not apply to an individual shareholder whose entitlement to franking rebates for the year from all franked dividends, received directly or indirectly through partnerships or trusts, would otherwise be $5,000 or less. This is roughly equivalent to receiving a fully franked dividend of $9,000. In addition, the related payments rule must not apply.

    The effect of this provision is that where you have a franking rebate entitlement in excess of $5,000, the full franking rebate is lost.

    You cannot buy a share and then sell it within 45 days after the day of acquisition-or 90 days for preference shares-and still be entitled to claim the franking rebate for a franked dividend paid or credited on the share. For these purposes you will be treated as having sold the share if you sell a substantially identical share.

    You have to satisfy this rule once only for each purchase of shares. You are then entitled to the franking rebate attached to those shares, unless the related payment rule applies-see below.

    Example

    Lisa held 1000 shares in X Pty Ltd for 12 months. She then purchased an additional 500 shares 10 days before X Pty Ltd shares went ex-dividend. Twenty days after X Pty Ltd shares went ex-dividend, Lisa sold 500 shares. These shares are substantially identical and are deemed to have been held for less than 45 days, based on last in first out. Lisa would not be entitled to the franking rebate on the franked dividends paid or credited on these shares.

    A qualification to the holding period rule prevents the counting of days on which you have 30 per cent or less of the ordinary financial risks of loss, and opportunities for gain, from owning the shares.

    You may reduce the financial risk of owning shares through arrangements such as hedges, options and futures.

    Example

    Franking rebate entitlement greater than $5,000 Mark received fully franked dividends of $10,000 and imputation credits of $5,600. However, because he has not held the shares for more than 45 days, he fails the holding period test and loses the benefit of the franking rebate.

    Mark would show a dividend of $10,000 as a franked amount at T item 10 on his 1999-2000 tax return but would not show the amount of imputation credit at U.

    He would not receive a franking rebate in his assessment.

    Last modified: 05 Dec 2006QC 16138