Claiming franking credits attached to a trust distribution
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This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attentionA trust that is paid or credited franked dividends includes both the amount of the dividend and the franking credit in its assessable income when calculating its net income or loss for tax purposes.
This is subject to the trust satisfying the holding period rule and other rules contained in the provisions dealing with franked dividends.
If there is any net income of a trust to which no beneficiary is presently entitled, or for which the trustee is assessed on behalf of a beneficiary who is under a legal disability, the trustee is taxed on that income at special rates of tax. The trustee will be entitled to a franking tax offset for any franking credit included in that part of the net income.
If you are the beneficiary of a trust and the trust makes a loss for tax purposes, there is no net income of the trust and any franking credit is lost. Trust losses cannot be distributed to beneficiaries.
If a share of the net income of a trust shown at item 13 on your tax return (supplementary section), at label Q, is attributable to a franked dividend, you may be entitled to claim a franking tax offset. This is your share of the trust’s franking credit arising from that dividend.
If the trust is a widely held trust, you will not be entitled to a franking tax offset if you do not satisfy the holding period rule or related payments rule in relation to your interest as a beneficiary in the trust or the trust does not satisfy those rules in relation to the shares. If the trust is not a widely held trust, you must satisfy the holding period rule and related payments rule in relation to your interest in the shares held by the trust in order to be entitled to the franking tax offset.
If the trust satisfies the holding period rule and other rules in relation to the shares and the small shareholder exemption applies to you, you do not have to satisfy the holding period rule.
For more information, see When you are not entitled to claim a franking tax offset.
Special rules apply to beneficiaries of trusts (other than trusts that elect to be family trusts within the meaning of the ITAA 1936 or deceased estates) to determine whether they hold their interest at risk.
Example 11: Trust with loss in 2021–22
Trust information
Item
|
Value
$
|
Franked dividend
|
2,100
|
Franking credit, non-cash
|
900
|
Total income of the trust
|
3,000
|
less deductible expenses of the trust
|
4,000
|
Loss
|
−1,000
|
Trust losses cannot be distributed to beneficiaries. Franking credits are not refundable in this example.
End of example
Example 12: Trust with net income in 2021–22
Trust information
Item
|
Value
$
|
Franked dividend
|
2,100
|
Franking credit, non-cash
|
900
|
Net income of trust
|
3,000
|
Beneficiary information
Item
|
Value
$
|
Taxable ⅓ share of net income of trust
|
1,000
|
Other assessable income
|
80,000
|
Total taxable income
|
81,000
|
Gross tax at 2021–22 rates
|
16,792
|
less ⅓ of total franking tax offset
|
300
|
Tax payable (see note)
|
16,492
|
Note: This does not include any liability for the Medicare levy.
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