The 45 day rule

What is the 45 day rule?

The 45 day rule is also called holding period rule that requires shareholders to hold shares for at least 45 days to claim the franking credits as a tax offset.

If an SMSF has held the shares for less than 45 days then trustees can’t claim these shares’ franking credits in the SMSF tax return.

What is small shareholder exemption? 

If shareholders has received less than $5,000 franking credits in a financial year, they can claim the franking credits in their tax return, even when they have held the stock for less than 45 days.

Does small shareholder exemption apply to SMSFs? 

Unfortunately, the answer is no.

The $5,000 exemption does not apply to SMSFs because an SMSF is not a “nature person” and is not qualified for this exemption.

What method should I use if my SMSF has purchased shares in a company over a period time?

The method to be used is “last in first out’ method. This means in order to pass the holding period role, you have to hold the last parcel of share your SMSF bought for at least 45 days. It may sound unfair but this the rule to be applied when you sell shares.

Some SMSFs may use hedges, options or futures to reduce the holding risks to pass the 45 day rule. This can be complicated and we recommend you speak to professionals to seek advice.