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  • Share of credits from income and tax offsets

    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

    If the trust income includes or is attributable to:

    • income from which an amount of tax was withheld because an Australian business number was not quoted, then enter your share of the credit at Tax withheld where ABN not quoted
    • interest, dividends and unit trust distributions from which tax file number (TFN) amounts have been withheld, then enter your share of the credit at TFN amounts withheld from interest, dividends, and unit trust distributions
    • payments from a closely held trust from which TFN amounts have been withheld, then enter the total of your credits for those amounts withheld at TFN amounts withheld from payments from closely held trusts
    • national rental affordability scheme (NRAS) rent, then enter your share of the NRAS tax offset at National rental affordability scheme tax offset
    • other credits for tax paid by a trustee on trust income, then include the total of your share of credits for tax paid by a trustee at Tax paid by trustee. However, if you are the principal beneficiary of a special disability trust do not include your share of credits for tax paid by the trustee here. For more information, see Do not show at this section.

    Also, if the trust income includes or is attributable to income that:

    • you received when you were an Australian resident from which an amount of tax was withheld because of the imposition of non-resident withholding tax or managed investment trust withholding tax, or
    • you derived as a foreign resident from which an amount of tax was withheld because of the operation of the foreign resident withholding rules

    then enter the total amount of these credits for amounts withheld at Credit for foreign resident withholding amounts (excluding capital gains)

    Franking credits

    Enter the amount of your share of any allowable franking credits which you are entitled to claim as a franking tax offset through a trust at Franking credit from franked dividends.

    You can only claim a share of a franking credit which relates to the share of a franked dividend paid to a trust which is indirectly included in the amount of trust income or franked distribution you show at Net income from trusts, less capital gains, foreign income and franked distributions or franked distribution you show at Franked distributions from trusts.

    Therefore, you cannot claim a franking credit for a dividend paid to the trust which was exempt income or non-assessable non-exempt income (for example, a distribution on which family trust distribution tax or trustee beneficiary non-disclosure tax has been paid).

    You cannot claim a share of a franking credit through a trust in the following circumstances:

    • the trust has an overall loss for tax purposes for 2017–18
    • you did not show an amount at Franked distributions from trusts, or
    • the amount of income from the trust you have shown at Net income from trusts, less capital gains, foreign income and franked distributions is not attributable to the franked dividend which has generated the franking credit.

    In addition, in order to claim a franking credit in respect of a particular dividend both you and the trustee must be qualified persons in relation to that dividend (see below).

    Qualified person

    There are rules, known as franking credit trading rules, designed to prevent the use of franking credits by persons who only briefly own their shares or who do not effectively own their shares. Under these rules, known as the 'holding period rule' and the 'related payments rule', you must satisfy certain criteria before you are considered to be a qualified person.

    If you derived dividends indirectly through a trust (except a widely held trust) you need to determine what component of the trust net income is attributable to a particular dividend, and then determine whether you have satisfied the holding period rule and the related payments rule in relation to that dividend.

    The trustee must also have satisfied these rules.

    The holding period rule applies to shares bought on or after 1 July 1997. It applies to you if you (or the trust) sold shares within 45 days of buying them. It also applies to you if you (or the trust) entered into a risk reduction arrangement, such as a derivative transaction, within that time. The holding period is 90 days for certain preference shares.

    The related payments rule applies to arrangements entered into after 7.30pm (Australian Eastern Standard Time) on 13 May 1997. It applies to you (or the trust) if you were under an obligation to make a related payment for a dividend and you did not hold your shares 'at risk' during a specified qualifying period.

    Special rules apply if you are the beneficiary of a trust and the trustee has made a family trust election.

    If you are a beneficiary in a widely held trust, you are treated as holding an interest in all the shares or interests held by the trust. You are only required to satisfy the 45-day rule in relation to your interest in the trust as a whole, rather than in relation to each share in which you had an interest under the trust. The trustee should be able to advise if a particular trust qualifies as a widely held trust.

    If you failed to satisfy the holding period rule, and the related payments rule does not apply to you, you may still be entitled to a franking tax offset if you qualify for the small shareholder exemption. The small shareholder exemption applies provided that you do not exceed the franking tax offset ceiling of $5,000 on all your franking tax offset entitlements in a given year, whether received directly or indirectly through a trust.

    If any of these measures are likely to affect you, see You and your shares.

    Tax paid by trustee

    Non-resident trust

    If you were an Australian resident, you may be able to claim a credit for Australian withholding tax you have borne on any Australian:

    • source dividend
    • interest
    • royalty, or
    • payment from an Australian managed investment trust included in the income of a non-resident trust to which you are entitled. A non-resident trust is a trust which, for all of the income year  
      • only has non-resident trustees, and
      • has its central management and control outside Australia.
       
    Legal disability

    If you were under a legal disability you may be able to claim a credit for the tax that the trustee has paid on your share of the trust's net income. You are considered to be under a legal disability if you:

    • were under 18 years old on 30 June 2018
    • are a person who is bankrupt, or
    • have been declared legally incapable because of a mental condition.
    Foreign resident

    If you were not an Australian resident you may be able to claim a credit for the tax that the trustee has paid on your share of income from a resident trust.

      Last modified: 28 Jun 2018QC 55618