Holding period rule for franking credits

According to the ATO, to be eligible for a tax offset for franking credits you are required to hold the shares 'at risk' for at least 45 days (90 days for preference shares and not counting the day of acquisition or disposal).

If you do not satisfy this rule:

• you’ll be denied the benefit of any franking credits attached to dividends received.
• you won’t be required to gross up your assessable income to include the denied franking credits in your income tax return
• you won’t be entitled to claim the denied franking credits as a tax offset.

As a result, you’ll only be subject to tax on the cash amount of the dividend received in respect of that particular parcel of shares to which the denied franking credits relate.

Days on which an investor has less than 30% of the ordinary financial risks of loss and opportunities for gain from owning the shares cannot be counted in determining whether the investor has held the shares 'at risk' for a period of 45 days.

Transactions such as granting options or warrants over shares or entering a contract to sell shares may have the effect of materially diminishing the investor's risk of loss and opportunity for gain in respect of the shares.

Because we do not know the complete circumstances of every investor, we assume that all shares are held 'at risk'. It will be up to the individual investor to determine whether the 'at risk' requirement has been met.