The 45-day holding period rule for franking credits requires you to hold ordinary shares “at risk” for at least 45 continuous days around the ex-dividend date before you can claim the franking credit attached to a dividend as a tax offset. The day you buy and the day you sell are not counted. For preference shares, the required period is 90 days. If you fail the test, the credit is denied and the dividend is taxed as ordinary income with no offset for the corporate tax the company already paid.1Australian Taxation Office. Franking Tax Offsets
Once you have satisfied the holding period for a particular parcel of shares, you don’t need to satisfy it again for later dividends on those same shares (unless a related payment is involved). Long-term investors almost never have to think about this rule. It catches people who trade in and out of positions around dividend dates.
How to Count the 45 Days
The count excludes both the acquisition date and the disposal date. Only the full days of ownership between them count.
Take a simple example. You buy shares on 1 March. The count starts on 2 March. The 45th qualifying day is 15 April. Because the day of sale is also excluded, the earliest you can sell without losing the credit is 16 April.1Australian Taxation Office. Franking Tax Offsets
The ex-dividend date anchors the qualification period. A share goes ex-dividend the day after the last day you could buy and still receive the dividend. If you have not already satisfied the holding period before the ex-dividend date, you must hold for the full 45 days (or 90 for preference shares) from acquisition, again ignoring the buy and sell dates.2Australian Taxation Office. You and Your Shares 2025
Multiple Parcels of the Same Share
If you have bought the same company’s shares on different dates and then sell some, the ATO applies the last-in, first-out method to work out which shares you sold. The most recently purchased shares are treated as sold first. This is mandatory for the holding period test. The identification methods available for capital gains tax, such as first-in, first-out or specific identification, do not apply here.3Australian Taxation Office. Last-In First-Out Method for the Holding Period Requirement
What “At Risk” Means
Owning shares on paper is not enough. For each day to count toward the 45, you must bear at least 30 percent of the ordinary financial risks of loss and opportunities for gain that come with owning the shares. Any day on which your exposure sits at 30 percent or below is stripped from the count.1Australian Taxation Office. Franking Tax Offsets
Hedging is what usually reduces exposure below the threshold. Put options, futures contracts, and other derivative positions can all diminish your economic exposure to the share price. If protective puts cover most of your downside, your real risk on those days may be negligible, and the ATO treats those days as days you were not genuinely at risk.2Australian Taxation Office. You and Your Shares 2025
A position that looks like ordinary long-term ownership can fail the qualified person test entirely once derivative overlays have removed the real risk. If you hedge around dividend dates, keep detailed records of every derivative position and its effect on your exposure to the underlying shares.
The Small Shareholder Exemption
Individual investors with modest franking credit entitlements can skip the holding period test. If your total franking credits for the income year come to less than $5,000, the 45-day rule does not apply to your dividends. You still need to comply with the related payment rule.4Australian Taxation Office. Refund of Franking Credits for Individuals
The threshold is strict. It is less than $5,000, not $5,000 or less. Once your total franking credits for the year reach $5,000, the exemption is lost for every dividend you received that year, not just the amount over the threshold. At the standard 30 percent corporate tax rate, that translates to roughly $11,666 in fully franked dividends before the exemption stops applying.2Australian Taxation Office. You and Your Shares 2025
The exemption is available only to individuals. It does not apply to trustees, partnerships, companies, or self-managed superannuation funds.5Australian Taxation Office. Non-Widely Held Trusts and the Franking Tax Offset If you hold the same portfolio through an SMSF instead of in your own name, you must satisfy the 45-day rule on every dividend regardless of the total credit amount.
The Related Payment Rule
A stricter version of the rule applies when you are obligated to pass the economic benefit of the dividend on to someone else. The ATO calls this a “related payment,” and it typically arises in securities lending arrangements, certain trust distributions, and similar structures where the benefit flows through to another party.6Australian Taxation Office. Franking Credit Trading
Where a related payment is made, you must hold the shares at risk for at least 45 days (90 days for preference shares) within the “secondary qualification period.” That period begins 45 days before the ex-dividend date and ends 45 days after it, or 90 days each side for preference shares.7ASX. The Holding Period and Related Payment Rules
Unlike the standard holding period, which you satisfy once per parcel of shares, the related payment rule must be satisfied for each dividend where a related payment is made. The same counting mechanics apply: buy and sell dates are excluded, and days with materially diminished risk drop out. The small shareholder exemption does not switch this rule off.
Trusts and SMSFs
For a beneficiary of a non-widely held trust to claim a franking credit, both the trustee and the beneficiary must independently qualify as “qualified persons.” If the trustee did not hold the shares at risk for the required 45 days, the beneficiary’s claim fails regardless of the beneficiary’s own circumstances.8Australian Taxation Office. ATO ID 2003/1108 – Franking of Dividends: Holding Period and Related Payments – Qualified Person – Family Trust Election The small shareholder exemption offers no help, because it is confined to individuals.5Australian Taxation Office. Non-Widely Held Trusts and the Franking Tax Offset
SMSFs must meet the 45-day holding period for every parcel of shares, with no exemption based on the total amount of franking credits. If an SMSF buys shares and receives a dividend before the 45-day window is satisfied, the dividend is treated as unfranked for that financial year. If the SMSF continues to hold the shares and satisfies the 45 days in the following year, it can claim the franking credits on future dividends from those shares. Because many SMSFs rely on franking credit refunds, particularly funds in pension phase, tracking holding periods is a core compliance task for trustees.
Non-Residents
If you are a non-resident of Australia for tax purposes, the 45-day rule is not something you need to work through: franking credits are not available to you at all. You cannot use them to offset Australian tax, and you cannot claim a refund. In exchange, the franked portion of your dividends is exempt from Australian withholding tax, and only the unfranked portion is subject to withholding.9Australian Taxation Office. Dividends Paid or Credited to Non-Resident Shareholders
Reporting Franking Credits on Your Tax Return
Australian resident individuals report dividend income and franking credits at Item 11 (Dividends) on the individual tax return. For the 2025 income year the labels are:
- Label S: total unfranked dividend amounts, including any tax file number amounts withheld.
- Label T: total franked dividend amounts.
- Label U: total franking credits, but only credits where you have satisfied the holding period rule, the related payment rule, and the dividend washing rule.
- Label V: total TFN amounts withheld (including cents).
These figures come from the dividend statements issued by the companies or managed funds that paid you dividends.10Australian Taxation Office. 11 Dividends 2025
Label U is the critical one. Your dividend statement will show the franking credits attached to each dividend, but you are responsible for excluding any credits you are not entitled to claim because you failed the holding period or at-risk requirements. Reporting credits you are not entitled to will trigger a reassessment if the ATO reviews your return, and the denied credits will be added back to your tax liability. If you are applying for a refund of franking credits rather than using them as an offset, the refund application uses the same label structure.11Australian Taxation Office. Instructions to Complete the Refund of Franking Credits Worksheet