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  • 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 it results in any of the following:

    • the organisation obtains a reduced benefit from the franked dividend (or notional trust amount)
    • the organisation, or another entity, provides a benefit or incurs a detriment
    • the entity that pays the dividend or trust distribution (or their associate) obtains 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.

    It's also important to note the 45 day period (or 90 day period for preference shares) doesn't 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 starts on the 45th day before, and ends 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:

    • you, or an entity connected to you, sell an interest in shares that you hold while retaining the right to a dividend, then
    • 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: 26 Jun 2019QC 59435