Taxation of Dividends & Franking Credits

[demodocus]

Can anyone tell me (for tax purposes)

AAAA
On what date the dividend is said to be paid to the taxpayer. Is it (a) the date the share goes ex-div or (b) the date the dividend is actually received by the taxpayer.

BBBB
Ref. the 45 day rule ..........

If a share is sold before the 45 days is up then the Franking credit is lost where the taxpayer already has accrued $5000 of FC's. However what is the situation where the 45 days straddles the end of a financial year ?

Tku

 

[rozella]

G'day demodocus,

When a company declares a dividend/distribution, they give you a record date & the date that the div/dist will be paid. exdiv date is 4 business/settlement days prior to the record date. ( I say that because generally the exdiv date is not stated & you need to work that out for your self, but the payment date is stated loud & clear.)

If the 45 days straddles the end of FY, then the clock starts again for the $5000, but once you reach the $5000 level, then all those trades under 45 days are forfeited.

If in doubt, ring the ATO (but unfortunately you will probably go around in circles)

 

[SharonK]

Gidday,

Just on dividends received they are assessable when they are received. so if there was a dividend declared for the year ended 30/6/06 but not paid until July 06 it would have to be included in your 2007 income tax return.

cheers
Sharon

 

[123enen]

Can anyone tell me (for tax purposes)

AAAA
On what date the dividend is said to be paid to the taxpayer. Is it (a) the date the share goes ex-div or (b) the date the dividend is actually received by the taxpayer.

BBBB
Ref. the 45 day rule ..........

If a share is sold before the 45 days is up then the Franking credit is lost where the taxpayer already has accrued $5000 of FC's. However what is the situation where the 45 days straddles the end of a financial year ?

Tku

You pose a very interesting scenario regarding the franking credit

A person receives a franking credit that takes the total franking credits beyond the $5000 limit. If the credit is held for 45 days the individual would claim the franking credit as a tax rebate.
However, what happens if the tax year ends before the 45 days have expired.
The dividend is recorded in this year’s tax but how do you treat the franking credit THIS year given that the 45 days had not expired.
Is the credit automatically forfeited?
Do you hold the franking credit back and report it in next year’s result?
Do you just report and take the credit knowing you will let the 45 days expire anyway?

It is a good question you raised and I do not know the answer.The answer is not in the official tax guide http://www.ato.gov.au/content/downloads/NAT2632-05.pdf

However for the other matters…. direct from the tax guide.
I like the bit below about "when the dividend cheque was posted."
By the way the 45 day rule is really 47 days


Dividends
Your shareholder dividend statement should contain details of the date a payment was made to you – generally referred to on the statement as the payment date or date paid. It is this date that will determine which financial year you include the dividend in your assessable income.

Where the dividend is paid by cheque, it is deemed to have been paid to you on the date the cheque was posted to you by the company – not on the date the cheque was received, banked or cleared.

Holding period rule
You must own shares for at least 45 days, or 90 days for preference shares (not counting the day of acquisition or disposal), before being entitled to any franking tax offset.

 

[Odduna]

You pose a very interesting scenario regarding the franking credit

A person receives a franking credit that takes the total franking credits beyond the $5000 limit. If the credit is held for 45 days the individual would claim the franking credit as a tax rebate.
However, what happens if the tax year ends before the 45 days have expired.
The dividend is recorded in this year’s tax but how do you treat the franking credit THIS year given that the 45 days had not expired.
Is the credit automatically forfeited?
Do you hold the franking credit back and report it in next year’s result?
Do you just report and take the credit knowing you will let the 45 days expire anyway?

It is a good question you raised and I do not know the answer.The answer is not in the official tax guide http://www.ato.gov.au/content/downloads/NAT2632-05.pdf

I understood that the '45 day rule' for a particular dividend applies to the 45 days before you become entitled to the franking credit i.e. before being paid the dividend.

can someone clarify this???

 

[123enen]

I understood that the '45 day rule' for a particular dividend applies to the 45 days before you become entitled to the franking credit i.e. before being paid the dividend.

can someone clarify this???

As long as you hold the stock at close of trading day before the day the stock goes ex dividend you will receive the dividend payment.
This applies even if you buy the stock only one day before ex date, even the last trade on that evening before ex date. The dividend is yours.

To ALSO be entitled to the franking credit (tax rebate) you need to hold the stock for 47 full days.( 45 days excluding date of acquisition and date of disposal).
That means you can buy it as much as 47 full days before ex date and sell it on ex date. You will be entltled to the franking credit.

If you buy the stock 10 days before ex date, for example, you will need to hold it for 37 days after ex date to be entitled to the credit.

 

[mit]

You pose a very interesting scenario regarding the franking credit

A person receives a franking credit that takes the total franking credits beyond the $5000 limit. If the credit is held for 45 days the individual would claim the franking credit as a tax rebate.
However, what happens if the tax year ends before the 45 days have expired.
The dividend is recorded in this year’s tax but how do you treat the franking credit THIS year given that the 45 days had not expired.
Is the credit automatically forfeited?
Do you hold the franking credit back and report it in next year’s result?
Do you just report and take the credit knowing you will let the 45 days expire anyway?

Interesting scenario. I checked last year and for the asx300 the last share to go exdiv and pay in the current financial year was the 10th of June so it is possible as if you bought it on the day before exdiv and held it, it would only be 20 days at the end of the fin-year. As I don't usually do my tax until August I would usually know the holding period. Although, check with your accountant.

MIT