If you are claiming franking credits at item 11, certain rules apply. Read the following to check that you are entitled to claim the credits.
You must be a 'qualified person' to be entitled to a franking credit in respect of a dividend. To be a qualified person you must satisfy the holding period rule and the related payments rule.
Holding period rule
To be able to claim the franking credits the holding period rule requires you to hold shares 'at risk' for at least 45 days (90 days for certain preference shares).
When working out the number of days you held the shares at risk, do not count the day on which you acquired the shares and the day on which you disposed of the shares (or you entered into an arrangement to reduce the risk of making a loss on them).
This rule applies generally to shares bought on or after 1 July 1997.
Even if you do not hold the shares at risk for the required period you may still be entitled to claim the franking credits if:
- your total direct and indirect franking credit entitlement for the income year, including any entitlement you may have through a trust or partnership, is not above $5,000 (the small shareholder exemption), and
- the related payments rule (see below) does not apply to you.
In determining whether the holding period rule is satisfied for the prescribed minimum period, no account is taken of any days on which you entered into an arrangement to materially reduce the risk of making a loss on your shares, such as through derivatives, hedges, options and futures.
If you do not satisfy the holding period rule, include the franked amount of the dividend at T item 11 but do not include any franking credit amount at U item 11 for that dividend.
Related payments rule
The related payments rule applies to arrangements entered into after 7.30pm (Australian Eastern Standard Time) on 13 May 1997. Broadly, it applies to you if you effectively had no interest in a dividend because you were under an obligation to make, or were likely to make, a related payment to another party for the dividend and you did not hold your shares 'at risk' for at least 45 days (90 days for certain preference shares).
When working out the number of days you held the shares 'at risk', do not count the day on which you acquired the shares and the day on which you disposed of the shares (or you entered into an arrangement to reduce the risk of making a loss on them).
A related payment includes you, or your associate, doing something under an arrangement that has the effect of passing the benefit of the dividend to someone else.
If either the holding period rule or related payments rule is likely to affect you, seeYou and your shares 2011 (NAT 2632).