For the first distribution in a franking period, the franking entity can select the franking percentage. This sets the benchmark percentage for the franking period. Any subsequent frankable distributions in the same franking period must be franked at the same percentage.
This rule ensures that, over time, the benefit of franking credits is spread more or less evenly across members in proportion to their ownership interest. Other integrity rules prevent the streaming, or disproportionate allocation, of franking credits to certain members.
- If an entity distributes frankable distributions and chooses not to frank them, the benchmark franking percentage for the period is zero.
- If no frankable distributions are made in the period, the entity doesn't have a benchmark franking percentage for the period.
- Franking entities must disclose to us if the benchmark franking percentage varies by more than 20% between successive franking periods in which frankable distributions are made.
The benchmark rule doesn't apply to listed public companies (or subsidiaries) that must include all members in distributions and frank those distributions at the same franking percentage for all members. This exception recognises that in these circumstances dividend streaming isn't possible or is unlikely.
Find out about
- Breaches of the benchmark rule
- Disclosure of significant variations between benchmark franking percentages
A breach of the benchmark rule will not invalidate the allocation made to the distribution, but it will result in the imposition of over-franking tax or the imposition of an under-franking debit for the franking entity.
The breach applies to the franking entity only. The member receiving the distribution – whether it's over-franked or under-franked – can still claim a tax offset for the amount of the franking credit shown on the distribution statement.
The over-franking tax and under-franking debit is calculated according to the difference between the franking credits allocated and the benchmark percentage:
- If the franking percentage for the distribution exceeds the benchmark franking percentage (over-franking), the entity is required to pay over-franking tax equivalent to the excess franking credits.
- If the franking percentage for the distribution is less than the benchmark franking percentage (under-franking), the entity incurs a franking debit in its franking account equivalent to the unused franking credits, meaning those credits are wasted.
- Franking deficit tax calculations, reduction rule and exclusions
- How to calculate over-franking tax and under-franking debit
- Applying to depart from the benchmark rule
As significant variations between benchmark franking percentages may indicate the presence of streaming, franking entities must disclose to us if the benchmark percentage varies by more than 20% between successive franking periods in which frankable distributions are made.
If there has been more than one franking period since a frankable distribution was made, the threshold increases in multiples of 20% for each franking period in which there has been no distribution. For example, if a franking entity makes a frankable distribution in period 1, followed by no frankable distribution in period 2, followed by a frankable distribution in period 3, the variation threshold for notifying us is 40%.
The entity must make the disclosure by lodging a franking account return by the last day of the month following the end of the income year.
See alsoThe first distribution in a franking period sets a benchmark franking percentage, which must be applied to all subsequent distributions in the same franking period.