Dividend imputations

From: Donna L


Off the topic I know but does anyone know
if the "45 days at risk" to claim franking
credits is dated from the date the dividend
is declared, the date it goes ex-dividend
or the date of payment?

Donna L
 
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Reply: 1
From: Richard Hunt


Donna,

Although the new imputation legislation came into effect on 1 July 2002, wrt holding period rules, the new legislation piggy-backs of the old imputation legislation.

Accordingly, assuming you are under no obligation to make a related payment in respect of the dividend, the 45 day period commences the day after the day you acquired the shares.

Regards
Richard
 
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Reply: 2
From: A Jones


Hello Donna,

I'm also interested in an answer to this. Do you count 45 days back from the date the dividend is declared or the date it is paid or for that matter, the date the stock trades ex-dividend.

I recall Normandy Mt. Leyson as a stock that for many years paid huge fully franked dividends until the mine ceased operating. (The mine life kept being extended). The share price ex-dividend would fall by about halfway between the cash value of the dividend and the grossed up value of the dividend.

A purchase of the stock shortly prior to the stock trading ex dividend and a sale after the stock traded ex-dividend would create a trading loss (for a share trader) to the extent of the fall in the share price and tax free dividend income and accompanying imputation credits.


A Jones
 
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Reply: 3
From: Dale Gatherum-Goss


Hi

The rules merely state that you must hold the shares for more than 45 days in total - regardless of when the dividend is declared or paid. It is your holding time that matters most.

The time is defined as the day after you bought the shares to 45 days thereafter.

Bye the way, if your imputation credits are less than $5,000 in one year, the rules do not apply to you at all and so you can claim the tax advantage regardless of how long you owned the shares.

I hope that this helps

Dale
 
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Reply: 3.1
From: A Jones


Thanks Dale.

I just checked this via the ato web site and came to the same conclusion (after being quite confused).

160APHO(2) [Qualification period]

A taxpayer who has held shares or an interest in shares on which a dividend has been paid satisfies this subsection in relation to a qualification period in relation to the shares or interest if, during the period:


(a) where the taxpayer held the shares - the taxpayer held the shares for a continuous period (not counting the day on which the taxpayer acquired the shares or, if the taxpayer has disposed of the shares, the day on which the disposal occurred) of not less than:

(i) if the shares are not preference shares - 45 days; or
(ii) if the shares are preference shares - 90 days; or

(b) where the taxpayer held the interest in the shares - the taxpayer held the interest for a continuous period (not counting the day on which the taxpayer acquired the interest or, if the taxpayer has disposed of the interest, the day on which the disposal occurred) of not less than:

(i) if the shares are not preference shares - 45 days; or
(ii) if the shares are preference shares - 90 days.

160APHO(3) [Calculating days shares or interest held]

In calculating the number of days for which the taxpayer continuously held the shares or interest, any days on which the taxpayer has materially diminished risks of loss or opportunities for gain in respect of the shares or interest are to be excluded, but the exclusion of those days is not taken to break the continuity of the period for which the taxpayer held the shares or interest.

A Jones
 
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Reply: 3.1.1
From: Richard Hunt


AJ,

To fully understand s160APHO you should also have a look at the definition of "qualification period" in s.160APHD.

Regards
Richard
 
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From: A Jones


Thanks Richard,

this is what I've found. My earlier conclusion was incorrect. Donna's question is more complex than first appears: -

SECTION 160APHD» DEFINITIONS

«160APHD» In this Division, unless the contrary intention appears:

qualification period , in relation to a taxpayer in relation to shares or an interest in shares, means the primary qualification period or the secondary qualification period in relation to the taxpayer in relation to the shares or interest.

primary qualification period , in relation to a taxpayer in relation to shares or an interest in shares, means the period beginning on the day after the day on which the taxpayer acquired the shares or interest and ending:


(a) if the shares are not preference shares - on the 45th day after the day on which the shares or interest became ex dividend; or


(b) if the shares are preference shares - on the 90th day after the day on which the shares or interest

secondary qualification period , in relation to a taxpayer in relation to shares or an interest in shares, means:


(a) if the shares are not preference shares - the period beginning on the 45th day before, and ending on the 45th day after, the day on which the shares or interest became ex dividend; or


(b) if the shares are preference shares - the period beginning on the 90th day before, and ending on the 90th day after, the day on which the shares or interest become ex dividend.


I then have a further question. If in calculating the 45 days after which the stock becomes ex-dividend I do not include days where the stock is at risk i.e. where the value of the stock could be materially diminished, does this mean I exclude non-trading days (weekends and certain public holidays during which the stockmarket does not open)?

A Jones
 
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