Understanding dividends and franking credits

Many ASX listed companies pay dividends twice each year, usually as an 'interim' dividend and a 'final' dividend. Dividend frequency is determined by the issuer, so this is not able to be changed.

Dividends are generally paid by the share registry on the dividend payment date as announced to the ASX, however will only be credited to your client’s Wrap account once the amounts and necessary information have been received by us as follows:

• Wrap Investments accounts – generally one business day after the dividend payment date
• Wrap Superannuation/Pension accounts – generally two to three business days after the dividend payment date due to additional reconciliation processes to correctly reconcile dividend payments to the underlying member’s account.

Delays may arise from time to time where:

• the dividend amount we’ve received from the registry doesn’t match the expected amount
• the necessary information hasn’t been supplied to accompany the amount we’ve received
• a payment has been withheld due to the account being closed or
• the bank details are not on file with the registry.

You can check the Income Details – Accrual basis report to see outstanding dividends which have been announced but have not yet been paid/allocated to your client's account.

A listed security usually goes ex-dividend one business day before the record date and this status remains until the close of trading on the date payable.

Refer to the ASX website or the relevant company website for announcements to find out the ex-dividend date for a listed security.

Dividend washing occurs when investors seek to claim two sets of franking credits on what is effectively the same parcel of shares. From 1 July 2013, a specific integrity rule was enacted that denies the benefit of additional franking credits where dividends are received as a result of dividend washing.

We will report a denial of franking credits on investor tax reports in the following scenario:

• Assets are listed fully-paid ordinary shares
• The company has paid a franked dividend (a dividend with an entitlement to an attached franking credit)
• Shares are sold without an entitlement to the dividend (ex div), on or between ex-date and ex-date + 3 days
• New shares are bought with an entitlement to the dividend (cum div), on or after the sale date up to and including ex-date + 3 days
• When a different number of shares are bought to the number of shares sold, the calculation will deny the franking credit entitlement on the smaller of the shares sold and shares bought.

Please note

The denied portion of franking credits will be disclosed in the Tax Report - Summary and in the Denied Franking Credit (DF) section of the Tax Report - Detailed.

We recommend that investors seek independent taxation advice in order to determine the appropriate treatment of these franking credits.

To be eligible for a tax offset for franking credits you are required to hold the shares 'at risk' for at least 45 days, excluding the purchase and sale date (90 days for preference shares).

If you do not satisfy this rule:

• you’ll be denied the benefit of any franking credits attached to dividends received.
• you won’t be required to gross up your assessable income to include the denied franking credits in your income tax return
• you won’t be entitled to claim the denied franking credits as a tax offset.

As a result, you’ll only be subject to tax on the cash amount of the dividend received in respect of that particular parcel of shares to which the denied franking credits relate.

Days on which an investor has less than 30% of the ordinary financial risks of loss and opportunities for gain from owning the shares cannot be counted in determining whether the investor has held the shares 'at risk' for a period of 45 days.

Transactions such as granting options or warrants over shares or entering a contract to sell shares may have the effect of materially diminishing the investor's risk of loss and opportunity for gain in respect of the shares.

Because we do not know the complete circumstances of every investor, we assume that all shares are held 'at risk'. It will be up to the individual investor to determine whether the 'at risk' requirement has been met.