Show download pdf controls
  • Applying for a refund of franking credits

    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

    Eligible organisations apply for a refund of franking credits annually on the Application for refund of franking credits (NAT 4131).

    In the last week of June of each year, we send a personalised refund application package to eligible organisations that applied for and received a refund in the previous financial year.

    Important changes

    Recent changes to the tax law mean your organisation now has objection rights and time limits in which to amend its claims for tax offset refunds (here being a refund of franking credits). These changes apply to franking credits attached to dividend income and attached to the entitlement to franked distributions for the year ended 30 June 2014 onwards. The changes also mean your claim for (or an amendment of) a tax offset refund will be subject to an income tax assessment.

    There are time limits for requesting an amendment to an assessment. We cannot amend an assessment if the time limit has passed.

    See also:

    Notices of assessment

    If you are a:

    • trust or a government entity, we will give you a notice of assessment
    • company, a notice of assessment will be deemed to have been given when you lodge this form If an amendment is made to any original assessment, we will give you a notice of amended assessment.

    A notice of assessment or a notice of amended assessment will include the following information:

    • the amount of your organisation’s taxable or net income (or that the amount is zero)
    • the amount of the tax payable on that taxable or net income (or that the amount is zero)
    • the total of your organisation’s tax offset refunds (or that the amount is zero).

    Application form changes

    The following changes have been made to the application form as a result of tax offset refunds being brought into the assessment regime:

    • Label B now specifies that your total of franking credits is your tax offset refunds amount.
    • New label C has been added, in which you are required to you add the amounts at label A and label B. If you do not complete this label correctly, it may take longer for us to process your refund.
    • New label D has been added to show your taxable or net income. As you must be income tax exempt or an income tax exempt deductible gift recipient to be eligible to complete this form; we have prefilled the new label D with ‘00’.
    • New label E has been added to show your tax payable. As you must be income tax exempt or an income tax exempt deductible gift recipient to be eligible to complete this form, we have prefilled the new label E with ‘00’.

    Paying the refund directly into your account

    Yes. If you complete the electronic funds transfer (EFT) section of the application form, we deposit the refund directly into your organisation's Australian bank, credit union or building society account of choice. It is faster to have the refund paid directly to your organisation's financial institution account.

    If you have outstanding tax liabilities

    If your organisation has any outstanding tax liabilities or other debts that are collected by us, the amount of any refund will be offset against those tax liabilities and debts. Any remaining amount will then be refunded to your organisation.

    Limits on claiming refunds

    Rules apply to prevent an eligible organisation from receiving a franking credit on a distribution which is attributable to a franked dividend through another eligible organisation. This ensures multiple tax offsets cannot be claimed in respect of the same franked dividend.

    Example

    A charitable trust, Charity, is an eligible organisation. It is paid a fully franked dividend of $5,000. Attached to the dividend is a franking credit of $2575 which Charity claims from the Tax Office. As a consequence of the dividend, Charity makes a distribution of $5000 to Benevolence another charitable trust that is an eligible organisation. Benevolence's entitlement to the the distribution arose in its capacity as a beneficiary of Charity. Benevolence is not entitled to any franking credit in relation to the distribution from Charity. This means it has no entitlement to a tax offset.

    The following rules also prevent the unintended use of franking credits:

    • specific anti-avoidance rules for eligible organisations
    • franking credit trading rules

    In addition to the above, the general anti-avoidance rules can apply.

    End of example

    Anti-avoidance rules

    A franking credit refund will not be available to an eligible organisation on payment of a franked dividend directly from the company or indirectly, through an entitlement to a franked distribution (for example, through a trust), if a transaction related to that payment results in any of the following:

    • the organisation obtaining a reduced benefit from the franked dividend (or notional trust amount)
    • the organisation, or another entity, providing a benefit or incurring a detriment
    • the entity that pays the dividend or trust distribution (or their associate) obtaining an advantage
    • failure to pass full, unconditional ownership of property comprising the dividend (or trust distribution) to the organisation at the time of payment.

    Franking credit trading rules

    Your organisation's entitlement to a franking credit refund may be affected by the holding period rule, the related payments rule or the dividend washing integrity rule. The Commissioner may make a determination to deny imputation benefits where your organisation has entered into a scheme for the purpose of obtaining franking credit benefits.

    Holding period rule

    Under the holding period rule, your organisation must hold shares (or an interest in shares) at risk for at least 45 days (or 90 days for preference shares). If the organisation is under no obligation to make a related payment, this rule only needs to be met once for each purchase of shares (or an interest) subject to the ‘last in-first out’ rules.

    Moreover, it is also important to note that the 45 day period (or 90 day period for preference shares) does not include the day your organisation acquired the shares or the day the shares were disposed.

    Related payments rule

    The related payments rule applies if your organisation has made, or is under an obligation to make, a related payment – that is, to pass on the benefit of a franked dividend to someone else. Under the related payments rule, your organisation must hold shares (or an interest) at risk for at least 45 days (or 90 days for preference shares) during the secondary qualification period to be eligible for a refund of franking credits. This rule must be met for all dividends and distributions where a related-payment will be made.

    The secondary qualification period means the period starting on the 45th day before, and ending on the 45th day after, the day the shares (or an interest) became ex-dividend (or 90 days before and after if the shares are preference shares).

    Dividend washing integrity rule

    The integrity rule applies to prevent you from claiming franking credits where you have received a dividend as a result of dividend washing.

    Dividend washing occurs where:

    1. you, or an entity connected to you, sell an interest in shares that you hold while retaining the right to a dividend, then
    2. by using a special ASX trading market, you effectively repurchase an interest in shares, generally in the same company, and receive an entitlement to a second dividend.

    If the dividend washing integrity rule applies, you are not entitled to claim the franking credits for the second dividend. However, if your interest in the second parcel of shares exceeds the interest in the first parcel, you may be entitled to claim a portion of these additional franking credits.

    The ATO’s view is that the general anti-avoidance legislation may be applied to dividend washing transactions not impacted by the integrity rule.

    See also:

      Last modified: 10 Feb 2017QC 40495