Franking of dividends: holding period and related payments - qualified person - family trust election

Is a beneficiary of a non-fixed trust in respect of which a family trust election has been made, a qualified person under section 160APHO of the Income Tax Assessment Act 1936 (ITAA 1936) in relation to dividends paid on ordinary shares acquired by the trustee post 31 December 1997 where the trustee has not held the shares at risk for 45 days.

No. The beneficiary of the non-fixed trust in respect of which a family trust election has been made is not a qualified person under section 160APHO of the ITAA 1936 in relation to the dividends.

The trustee acquired the ordinary shares at the end of January 2002 and sold the shares in June 2002. Franked dividends with attached franking credits of $5,490 were paid to the trustee and distributed to a beneficiary during the 2001-02 income year. The trustee had materially diminished risk in respect of each day the shares were held. Neither the trustee nor an associate of the trustee has made, is likely to make or is under an obligation to make a related payment in respect of the dividends paid.

For a beneficiary to be a qualified person under section 160APHO of the ITAA 1936 in relation to an interest in shares on which a dividend has been paid, the beneficiary must have held the interest at risk for at least 45 days during the primary qualification period. The beneficiary is taken under sub-section 160APHG(3) of the ITAA 1936 to hold an interest in the shares while the trustee holds the shares. As a non-fixed trust, the trust will be considered a non-widely held trust. If a beneficiary of a non-widely held trust is to be a qualified person, the trustee must also be a qualified person. Having not held the shares at risk for 45 days, the trustee will not be considered a qualified person in relation to the dividend. Consequently, the beneficiary will also not be a qualified person in relation to the dividend (section 160 APHU(1) of the ITAA 1936).

Therefore, the beneficiary of the non-fixed trust is not a qualified person under section 160APHO of the ITAA 1936 in relation to the dividends paid where the trustee has not held the shares at risk for 45 days.