27 Aug 45 Day Rule – Don’t Lose Your Franking Credits
If you are a regular share investor you will hopefully understand the 45-day rule but it is always worthwhile reminding our clients about it because the implication of getting it wrong can be costly.
What is the 45 Day Rule?
Simply, this rule means if you purchase shares and receive a franked dividend you may lose the Franking Tax Offset if you do not hold the shares “at risk” for 45 days.
But it’s not Always that Simple
There is an exemption if you are an individual shareholder and the total franking credits you are claiming in the tax year is less than $5,000. That exemption may also apply to partnerships and some trusts but it may not too.
45 days means 47 days because the purchase and sale dates are excluded.
There are special provisions for Preference Shares.
The ATO has rules about how “at risk” is calculated. This can be affected by hedges, options, and futures.
If you are adding to an existing parcel of shares the ONLY option you have to determine the holdings on hand throughout the holding period is the Last In First Out method.
If you have any doubt, please give me a call on (07) 5448 9600 because this is only one of a range of provisions that may affect your entitlement to claim the Franking Tax Offset.
More for Experts – What do you Think?
- Suzy has held 10,000 shares in High Co. Pty Ltd for around 4 years. She buys another 5,000 shares in High Co. Pty Ltd on March 1st 2017. On 22nd March 2017 Suzy receives a fully franked dividend of $1.20 per share (includes franking credits of $5,400). Suzy sells 10,000 shares in High Co. Pty Ltd on 31st March 2017.
For more information give me a call in the office on (07) 5448 9600 or drop me a message.