ATO releases information sheet on franking credits

The Australian Taxation Office (ATO) has released the information sheet Refund of franking credits 2015 – 16.

Franking credits attached to franked dividends paid to your organisation and attached to an entitlement to a franked distribution are refundable provided certain eligibility criteria are met and your organisation is any of the following:

  • A charity registered with the ACNC and endorsed by the ATO as exempt from income tax
  • An income-tax-exempt deductible gift recipient (DGR) endorsed in its own right.  It’s not sufficient if your DGR is endorsed only in relation to a fund, authority or institution that it operates, such as a school-building fund
  • An income-tax-exempt DGR listed by name in the tax law
  • An income-tax-exempt relief fund declared by the federal treasurer to be a developing country-relief fund, and
  • A prescribed income-tax-exempt entity eligible for a refund under relevant regulations.

Franking credits generally occur for shareholders when certain Australian-resident companies pay income tax on their taxable income and distribute their after-tax profits by franked dividends.  Franked dividends have franking credits attached.

Franked dividends can also occur as a result of an entitlement to a franked distribution, such as when the organisation is a beneficiary of a trust.

Organisations that receive a dividend from a New Zealand company with Australian franking credits attached will be able to obtain a refund of those Australian franking credits.

New Zealand franked credits cannot be claimed.  If the New Zealand company that paid the dividend has not specified that the franking credit is Australian, you should contact the company to work out if it is an Australian or New Zealand franking credit. In most cases, if it is not specified as Australian, it will be a New Zealand franking credit.