Dividend Stripping (45-Day Rule)

Dividend stripping is the acquisition of shares just before a dividend is paid, and the sale of those shares straightaway after the dividend payment. The purpose of dividend stripping is to simultaneously acquire a share’s dividend, imputation credit and capital gain. Dividend stripping is seen as a tax avoidance scheme. The Tax Office has introduced the 45-Day Rule to stop investors manipulating the tax system by utilizing the dividend stripping strategy.

The 45-Day Rule requires resident taxpayers to hold shares at risk for at least 45 days (90 days for preference shares, not including the day of acquisition or disposal) in order to be entitled to Franking Credits.

The 45-Day Rule is one of the anti-avoidance rules aimed at preventing the unintended use of Franking Credits. It generally applies to shares bought on or after 1 July 1997. This holding period rule does not apply where an individual’s total Franking Credits entitlement for the Financial Year are below $5,000. The 45-Day Rule applies to all SMSF’s regardless of the amount of Franking Credits. This means that the $5,000 exemption that applies to individuals does not apply to SMSF’s. The holding period rule only needs to be satisfied once for each purchase of shares.

Your SMSF’s entitlement to Franking Credits may also be affected by the Related Payments Rule and the Dividend Washing Integrity Rule.

Accounting Treatment for the 45-Day Rule by Superannuation Warehouse

We use Simple Fund to prepare the Annual Return for all our SMSF clients. In Simple Fund the way to record shares which have not met the 45-Day Rule is to record the dividend as fully unfranked. Hence, your SMSF will not obtain the benefit of the Franking Credits for the Financial Year in which the shares in your Fund were not held for at least 45 days. However, if your SMSF holds the shares for more than 45 days in the next Financial Year, your SMSF will then be entitled to the benefits of Franking Credits.

The ATO gives examples of how the 45-Day Rule works, please see the ATO examples on page 1 and 2 here. To learn more about Franking Credits and investments in the SMSFs, please visit our Franking Credits and investments page.

  • Danny

    I have a question re the holding period rule and the accounting treatment. If you have purchased shares and still own the shares at 30 June (but have not held the shares for 45 days) at that point – can you still claim the franking credits (assuming that into the new financial year you have met the required holding period).
    Or, does this rule only come into effect if you have bought & sold and the period is less than the required holding period.

    • Hein Preller

      Hi Danny,

      Our understanding is that an SMSF must hold company shares for at least 45 days (plus the day of purchase and day of disposal) to be entitled to franking credits. If shares are bought and sold in less than the required holding period, dividends received from shares will be recorded as fully unfranked dividends.

      Trust this gives you some guidance.

      • Danny

        Thanks Hein. I suppose my question relates to if you hold the shares at 30 June but, the time you have held the shares is less than 45 days then can you claim the franking credits in the SMSF tax return (assuming that the holding period is greater than 45 days – crossing over financial years)

        • Hein Preller


          To make sure you can claim all the imputation credits, wait for 45 days after the year end. Then prepare and lodge your SMSF tax return.

          This will be a clear indication that the shares were held for a period of more than 45 days so you can claim all the imputation credits.

          • Danny

            Thanks that makes sense

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