Last updated on August 7th, 2026

What is the 45-day rule for SMSF?

Franking credits entitlements attached to company dividends reduces an SMSF’s tax bill. The fund has an advantage to most other entities. When dividends are fully franked the SMSF receives imputation credits exceeding the 15% fund tax rate. Any excess credits can be offset against other income of the SMSF or refunded.  These credits aren’t reduced even if the fund earns exempt pension income or has tax losses.

Tax Avoidance

The Australian Taxation Office (ATO) implemented the 45-day rule in response to dividend stripping practices deemed to constitute tax avoidance.

In summary an SMSF must satisfy certain integrity rules to be entitled to the franking credit which include:

• an SMSF must hold the shares at risk for at least 45 days excluding the acquisition date and the date of disposal – preference shares must be held for at least 90 days
• entering into contracts to sell shares or options or warrants hedging the fund’s risk may diminish the fund’s entitlement to franking credits
• to calculate the holding period the Last-In-First-Out (LIFO) method must be applied to the purchase and sale of shares
• franking credits are denied when dividend washing occurs such as selling shares on the ordinary market on an ex-entitlement basis with those shares retaining the entitlement to the franking credits and then purchasing a nearly identical parcel of shares on the ASX special market on a cum-dividend basis

When dividend washing occurs the SMSF receives two lots of franking credits for what is essentially the same shares. There is minimal to no risk to the SMSF and no or minimal capital gains are incurred. Under the integrity measures the franking credit on the 2^nd cum-dividend purchase is denied and the dividend is included in the fund’s annual return but is not grossed up for the franking credit.

What does ex-dividend and cum-dividend mean?

A dividend declaration provides details of the distribution including:

• the date of the dividend announcement
• the ex-dividend date being the date the shareholder is not entitled to the declared dividend
• the record date which is the date the share registry closes its registry to determine the shareholders which are entitled to the dividend and related franking credit
• the payment date is when the dividend is payable to the shareholder

If you buy shares before the ex-dividend date, you are entitled to receive the dividend and franking credit. Buying on or after the ex-dividend date means you are not entitled to the dividend. The share price reflects whether the dividend is included.

Cum-dividend– is from the date the dividend is declared until the day prior to it becoming ex-dividend.

Ex-dividend date– is the date when the owner of the shares is not entitled to receive the declared dividends.

What is the holding period?

An SMSF must hold shares at risk for at least 45 days during the “primary qualification period” to be eligible for the franking credit arising from the receipt of dividends.

Preference shares are required to be held for 90 days.

An individual is able to claim franking credits regardless of the 45- day rule up to $5,000.  However, an SMSF is not eligible to access this exemption.

The “primary qualification period” is calculated from the day after the acquisition and ends on the 45^th day after the shares are declared as ex-dividend.

How does the 45-day rule work when shares are sold?

LIFO method is the only method that can be used to calculate whether an SMSF qualifies for a franking credit when the shares are sold prior to the end of the primary qualification period.

In example 2 there are multiple purchases and sales. The initial step is to determine the balance of BHP shares held at the ex-dividend date which was 1,100 shares.

At 1/8/25

Parcel 1 shares were held for more than 45 days.

Parcel 2 shares were held less than 45 days.

• Franking credits on parcel 1 shares can be claimed
• Franking credits on parcel 2 shares are denied and the income reported will not include a gross up for the franking credits

Parcel 3 shares do not receive any entitlement to the franking credits as they were purchased after the ex-div date.

Date	Parcel	Purch/Sales	LIFO	Bal	LIFO	Bal
30/4/2025	1	1,000	(200)	800	(100)	700
10/5/2025		(200)
20/7/2025	2	300		300	(300)	Nil
27/7/2025		Franked div declared
1/8/2025		Ex-div date
10/8/2025	3	200				200
30/8/2025		(400)
Bal at 1/8/25				1,100
Bal at 30/8/25						900

Hint – While the LIFO method must be used to determine the 45-day rule alternative methods such as First-In-Last-Out (FILO) can be used to calculate capital gains on disposal of shares.