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Franking credits attached to a partnership or trust distribution

Last updated 3 July 2023

Information about claiming franking credits attached to a partnership or trust distribution.

Claiming franking credits attached to a partnership distribution

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 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 13 Partnership and trusts on your tax return (supplementary section) is attributable to a franked dividend, you may be entitled to claim a franking tax offset, at label Q, which is your share of the partnership’s 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, see When you are not entitled to claim a franking tax offset.

Example 10: partnerships and trusts

Partnership income

Item

Value
$

Franked dividend

700

Franking credit, non-cash

300

Net income of partnership

1,000

Individual partner: half share

Item

Value
$

Taxable half share of net income of the partnership

500

Other assessable income

80,000

Total taxable income

80,500

Gross tax at 2022–23 rates

16,629.50

less half of the total franking tax offset

150

Tax payable (see note)

16,479.50

Note: This does not include any liability for the Medicare levy.

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 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 any net income of a trust to which no beneficiary is presently entitled, or for which the trustee is assessed on behalf of a beneficiary who is under a legal disability, the trustee is taxed on that income at special rates of tax. The trustee will be entitled to a franking tax offset for any franking credit included in that part 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 franking credit is lost. Trust losses cannot be distributed to beneficiaries.

If a share of the net income of a trust shown at item 13 on your tax return (supplementary section), at label Q, is attributable to a franked dividend, you may be entitled to claim a franking tax offset. This is your share of the trust’s 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 as a beneficiary 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 holding period rule and other 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, see 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 ITAA 1936 or deceased estates) to determine whether they hold their interest at risk.

Example 11: trust with loss in 2022–23

Trust information

Item

Value
$

Franked dividend

2,100

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. Franking credits are not refundable in this example.

End of example

 

Example 12: trust with net income in 2022–23

Trust information

Item

Value
$

Franked dividend

2,100

Franking credit, non-cash

900

Net income of trust

3,000

Beneficiary information

Item

Value
$

Taxable one-third share of net income of trust

1,000

Other assessable income

80,000

Total taxable income

81,000

Gross tax at 2022–23 rates

16,792

less one-third of total franking tax offset

300

Tax payable (see note)

16,492

Note: This does not include any liability for the Medicare levy.

End of example

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