Mr Taxman
Change the way you feel about taxes.
Get informed and discover what the taxman doesn't want you to know.
Sharing it with Australia, Mr Taxman is a regular Woman’s Day columist and TV finance commentator
  • click to visit Mr Taxman on Twitter
  • click to visit Mr Taxman on FaceBook
  • rss

Claiming dividend franking credits for tax

Dec 07, 2011

I am about to lodge my income tax return but heard that I may not be entitled to claim the imputation credits on my dividends as I bought and sold the shares during the 7 days around the ex-dividend date.  Could you please clarify if that is the case?

You might be able to claim the imputation credits but the key is the amount of dividends that you have received during the year.

Being able to claim imputation (or franking) credits against your income is an important trading strategy for most people.  Companies that pay fully franked dividends provide a better yield after-tax than those that pay unfranked dividends because you get a credit for the 30% income tax already paid. However the introduction of the“45 day holding period” rule in the late 1990s was designed to stop people trading around the dividend date, purely to get these tax-advantaged imputation credits.

I remember when this rule was first introduced.  I was a young options trader and it created pandemonium on the floor because traders and investors alike were unsure how to price it in when looking at the future income stream. 

The holding period rule states that you may not be eligible for the franking tax offset unless you continuously hold shares “at risk” for at least 45 days (or 90 days for preference shares) around, and including, the ex-dividend date.  However under the small shareholder exemption, this rule does not apply if your total franking credit entitlement is below $5,000 in a financial year.  This is roughly equivalent to receiving a fully franked dividend of $11,666 based on the current tax rate of 30% for companies. Hopefully that applies to you!

 

This article first appeared in the Sept/Oct 2011 issue of YTE Magazine www.YTEmagazine.com. Copyright Your Media Edge Pty Ltd 2011.

Tags: Personal taxShares

Author: Mr Taxman

Comments

"Can a pty company claim imputed credits back as cash if they are in a profit or loss situation Thank you"

By: ron williams on Dec 11, 2011 3:37AM

"Unfortunately companies in a loss (or nil income) situation are generally not eligible to claim a refund for any excess imputation credits. The only exceptions to the rule are companies that are life insurance companies or are tax exempt charities and deductible gift recipients. "

By: Mr Taxman on Jan 26, 2012 2:52AM

Post a New Comment

Media Availability

Are you interested in booking Mr Taxman for a speaking engagement or requesting his viewpoints for an article?

comments-rhsLatest Comments

  • "Hi, I see clients for a mobile service3 in the suburbs. My employer has her home address listed as our office- but I rarely go there (just going straight from home from client to client). I get..."

    By: Billie at Feb 13, 2020 6:57AM

    Post: Claiming car expenses

  • "hi, I am currently a housewife and I plan to start a business. I do not want to mention this income to my husband when we do our individual tax returns. (I love my husband but he is stubborn and he..."

    By: happy at Feb 04, 2020 11:33AM

    Post: Marriage

  • "Regarding the $30k tax write off,what is the eligibility criteria for used vehicles. Is there a klm or build year limit?"

    By: Mark Johnson at Dec 21, 2019 8:58PM

    Post: Claiming car expenses

  • "Does my accountant have access to my registered relationship eg: will they know who I am in a relationship with and since when? Al"

    By: al at Oct 31, 2019 6:43AM

    Post: Marriage

  • "Hi, I am a doctor and I am contracted to work at Hospital "A". I however rotate every 10 weeks in different hospitals for my work (say Hospital "B" a few months ago). Am I able to claim car travel..."

    By: Sam at Oct 30, 2019 5:54AM

    Post: Claiming car expenses