• Eligibility for a refund

    You are eligible for a refund of excess franking credits if all of the following apply:

    • You receive franked dividends, on or after 1 July 2000, either directly or through a trust or partnership.
    • Your basic tax liability is less than your franking credits after taking into account any other tax offsets you are entitled to.
    • You meet our anti-avoidance rules, which are designed to ensure everyone pays their fair share of tax.

    If you have received a dividend that has Australian franking credits attached from a New Zealand franking company, you may be eligible to claim the Australian sourced franking credits.

    On this page:

    Keeping records

    You need to retain the dividend statements from either the:

    • company that paid the franked dividend
    • trust or partnership that made the distribution containing the franking credit.

    These statements should show the amount of the net dividend, the franked amount, unfranked amount and the franking credit, together with the date of payment.

    Anti-avoidance rules

    You need to meet the anti-avoidance rules to qualify for a refund.

    If your total franking credits entitlement is $5,000 or greater, regardless of whether your shares are a single parcel or a portfolio made up of several parcels, you must meet the:

    • holding period rule
    • related payments rule.

    If your total franking credits entitlement for the income year is less than $5,000 you only need to meet the related payments rule.

    You are entitled to a franking tax offset only for those shares that satisfy the relevant rule or rules. If you cannot claim a refund, you do not include those franking credits in your assessable income.

    Holding period rule

    Total franking credits entitlement of $5,000 or greater

    The holding period rule generally applies to shares bought on or after 1 July 1997. It requires you to hold the shares 'at risk' for at least 45 days (90 days for preference shares and not counting the day of acquisition or disposal) to be eligible for a tax offset for the franking credit. The holding period rule only needs to be satisfied once for each purchase of shares. It only applies if your total franking credits entitlement for the year of income is over $5,000.

    If you have more than $5,000 in franking credits from a single parcel of shares and did not satisfy the holding period rule for those franking credits, you have no entitlement to a franking tax offset for the entire franking credits. In other words, you cannot restrict your claim of franking credits to a maximum of $5,000. Because you cannot claim a franking tax offset, you do not include the affected franking credits in your assessable income.

    If you are a partner in a partnership or a beneficiary of a trust, both you and the partnership or trust must satisfy this rule to be eligible for the refund of excess franking credits.

    Total franking credits entitlement below $5,000

    You don't need to meet this rule if your total franking credits entitlement for the year of income is below $5,000.

    Under the small shareholder exemption, you will need to ignore the holding period rule if all of your franking tax offset entitlements in a given year (whether received directly from a shareholding, or indirectly through a trust or partnership) total less than the maximum of $5,000. You still need to meet the related payments rule.

    See also:

    Related payments rule

    The related payments rule applies to arrangements entered into after 7.30pm (Australian Eastern Standard Time) on 13 May 1997. It applies to you if you make, are under an obligation to make, or are likely to make, a related payment. A related payment is a payment that passes on the benefit of the franked dividend to someone else.

    If the rule applies, and you do not hold the shares 'at risk' for a period of 45 days (90 days for preference shares), you are prevented from receiving a tax offset for the franking credits. The related payments test must be satisfied for each dividend payment and distribution and it applies to any amount of total franking credits entitlement for the year.

    If you are a partner in a partnership or a beneficiary of a trust, both you and the partnership or trust must satisfy this rule to be eligible for the refund of excess franking credits.

    Dividends received through a partnership or trust

    You are eligible for a refund of franking credits attached to franked dividends paid on if you are either a:

    • resident individual
    • trust or partnership if a resident individual receives franked dividends indirectly through the trust or a partnership.

    Generally, beneficiaries of a trust who are presently entitled to a part of the trust income that is attributable to franked dividend income and partners of a partnership who have received franked dividend income are entitled to a tax offset for this income.

    If you are a beneficiary of a trust, the refund is:

    • available only if there is some positive amount of trust income that you are presently entitled to
    • the portion of the franking credit attached to the franked dividend equivalent to your share of the net trust income attributable to the franked dividend.

    If you are a partner in a partnership, the tax offset is:

    • available even where the partnership has sustained a loss
    • the portion of the franking credit attached to the franked dividend equivalent to your interest in the partnership.

    Because both the trust income and partnership income has been grossed up to include the franking credit at the trust and partnership level, you do not need to gross up the amounts received in your own tax return.

      Last modified: 04 Nov 2016QC 16183