The 45-day rule, often referred to as the holding period rule, is designed to prevent taxpayers from claiming franking credits on shares that they have not held for a sufficient period of time. The Australian Taxation Office (ATO) introduced this integrity measure to ensure that only genuine long-term investors—not short-term traders—benefit from imputation credits attached to dividends.
Under this rule, you must hold shares “at risk” for at least 45 continuous days to be eligible to claim franking credits as a tax offset. For preference shares, the required holding period is 90 days. The ATO requires that when counting the days, you must exclude the day of acquisition and the day of disposal.
The “at-risk” condition means that you must retain the economic exposure to the shares during this period. If you use hedging strategies, options, or other arrangements that effectively eliminate your risk of loss or opportunity for gain, the ATO may consider that you were not holding the shares at risk, and the franking credit claim could be denied.
This rule applies to individuals, companies, and trusts that receive franked dividends. However, there is a small shareholder exemption—if your total franking credit entitlement for the year is $5,000 or less, the 45-day rule does not apply.
Example:
Suppose you purchase 1,000 shares in an Australian company on 1 April and receive a fully franked dividend on 30 April. You sell those shares on 20 May. Because you held the shares for only 49 days, but the day of purchase and sale are excluded, your effective holding period is 47 days. In this case, you meet the 45-day rule, and the franking credits can be claimed. However, if you had sold the shares just a few days earlier, you might not qualify.
Key takeaways:
- Must hold shares “at risk” for at least 45 days (or 90 for preference shares).
- Exclude the day of purchase and the day of sale when counting days.
- Applies to both individuals and entities receiving franked dividends.
- $5,000 exemption applies for small shareholders.
- Designed to prevent dividend trading and short-term manipulation.
Reference – “Franking tax offsets
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