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Claiming franking credits attached to a partnership distribution

Last updated 26 July 2004

When calculating its net income or loss for tax purposes, a partnership that is paid or credited a franked dividend includes both the amount of the dividend and the imputation/ franking credit in its assessable income. This is subject to the partnership satisfying the holding period rule and other rules contained in the provisions dealing with franked dividends.

If a share of the net income or loss of a partnership shown at item 12 on your 2003 tax return for individuals (supplementary section) is attributable to a franked dividend, you may be entitled to claim a franking tax offset, which is your share of the partnership's imputation/ franking credit arising from that dividend.

You are not entitled to a franking tax offset if you do not satisfy the holding period rule or related payments rule in relation to your interest in the shares held by the partnership, or the partnership does not satisfy those rules in relation to the shares.

If the partnership satisfies the rules in relation to the shares and the small shareholder exemption applies to you, you do not have to satisfy the holding period rule.

For more information, read the section When you are not entitled to claim a franking tax offset

Example

Partnership

Franked dividend

$700

Imputation/ franking credit-non-cash

$300

Net income of partnership

$1,000

Individual partner-1/ 2 share

Taxable 1/ 2 share of net income of the partnership

$500

Other assessable income

$20,000

Total taxable income

$20,500

Gross tax-2002-03 rates

$2,530

less 1/ 2 of total franking tax offset

$150

Tax payable

$2,380

 

End of example

Claiming franking credits attached to a trust distribution

A trust that is paid or credited franked dividends includes both the amount of the dividend and the imputation/ franking credit in its assessable income when calculating its net income or loss for tax purposes.

This is subject to the trust satisfying the holding period rule and other rules contained in the provisions dealing with franked dividends.

If there is income of a trust to which no beneficiary is entitled, the trustee's share of the net income of the trust is assessable. They will be entitled to a franking tax offset for any imputation/ franking credit included in that share of the net income.

If you are the beneficiary of a trust and the trust makes a loss for tax purposes, there is no net income of the trust and any imputation/ franking credit is lost. Trust losses cannot be distributed to beneficiaries. Note that for trusts that distribute income, excess imputation credits have been refundable since the 2001 income year.

If a share of the net income of a trust shown at item 12 on your tax return is attributable to a franked dividend, you may be entitled to claim a franking tax offset. This is your share of the trust's imputation/ franking credit arising from that dividend.

If the trust is a widely held trust, you will not be entitled to a franking tax offset if you do not satisfy the holding period rule or related payments rule in relation to your interest in the trust or the trust does not satisfy those rules in relation to the shares. If the trust is not a widely held trust, you must satisfy the holding period rule and related payments rule in relation to your interest in the shares held by the trust in order to be entitled to the franking tax offset.

If the trust satisfies the rules in relation to the shares and the small shareholder exemption applies to you, you do not have to satisfy the holding period rule.

For more information, read the section When you are not entitled to claim a franking tax offset

Special rules apply to beneficiaries of trusts-other than trusts that elect to be family trusts within the meaning of the Income Tax Assessment Act 1936 (ITAA 1936) or deceased estates-to determine whether they hold their interest 'at risk'.

Example: Trust with loss in 2002-03

Trust

Franked dividend

$2,100

Imputation/ franking credit-non-cash

$900

Total income of the trust

$3,000

less deductible expenses of the trust

$4,000

Loss

($1,000)

Trust losses cannot be distributed to beneficiaries. Imputation/ franking credits are not refundable in this example.

End of example

Example: Trust with net income in 2002-03

Trust

Franked dividend

$2,100

Imputation/ franking credit-non-cash

$900

Net income of trust

$3,000

Beneficiary

Taxable 1/ 3 share of net income of trust

$1,000

Other assessable income

$10,000

Total taxable income

$11,000

Gross tax-2002-03 rates

$850

less 1/ 3 of total franking tax offset

$300

Tax payable

$550

 

End of example

QC27473