Glossary
45-Day Holding Rule
The 45-day rule is the ATO's gate on franking credit entitlement: hold the shares at risk for at least 45 days around the ex-date, and be at risk of at least 10 percent of the dividend. Small shareholders with under $5,000 of credits a year are exempt.
What it is
The 45-day holding rule is the ATO's condition for claiming franking credits on dividends. You must hold the shares for more than 45 days - excluding the acquisition and disposal dates - within the qualification period around the ex-date. You must also be at risk of at least 10 percent of the dividend amount, which stops pure dividend-stripping plays. Preference shares carry a 90-day version of the same rule.
The small shareholder exemption sits underneath. Individuals with franking credits of $5,000 or less a year are exempt from the rule, which covers most retail portfolios. The rule exists because of dividend stripping - buying before the ex-date and selling after it to harvest the credits. The franking credits entry covers the credits the rule gates.
Key takeaways
- The 45-day rule gates franking credit entitlement: hold the shares for more than 45 days around the ex-date.
- The acquisition and disposal days do not count toward the 45.
- You must also be at risk of at least 10 percent of the dividend amount.
- Preference shares carry a 90-day version of the same rule.
- Individuals with $5,000 or less of franking credits a year are exempt.
How it works
The qualification period runs from 45 days before the ex-date to 45 days after it. The shares must be held for more than 45 of those days, excluding the day you bought and the day you sold. The at-risk test runs alongside: exposure to at least 10 percent of the dividend. The qualification period is the envelope; the holding days must land inside it.
The rule is aimed at dividend stripping. The play is mechanical: buy the day before the ex-date, collect the fully franked dividend, sell the day after. Without the rule, the credits - cash refunds for low-rate taxpayers - are harvested without holding the risk. The 45-day window makes the play a 45-day exposure to the price. The at-risk test is the second gate - the dividend must be 10 percent of the risk, not the other way around.
The exemption covers small shareholders: individuals with $5,000 or less of franking credits a year skip the test entirely. The dividend imputation entry covers the system behind the credits. The share buyback entry covers the off-market version where the rule also applies. Run the holding arithmetic through the holding period return calculator before the trade.
Why it matters
For an Australian investor, the 45-day rule is the fine print on every fully franked dividend. Most retail portfolios clear the exemption comfortably: under $5,000 of credits a year skips the test. The portfolios that meet the rule are the ones buying and selling around ex-dates - the stripping plays the rule was built to stop. The dividend entry covers the ex-date calendar the rule hangs on.
A colleague named Brent (yes, that Brent) bought a fully franked stock the day before the ex-date and sold the day after. The $700 credit was denied: 46 days were required, and he held two. The shares sat at risk for two days, and the price fell $400 between the buy and the sell. The dividend reinvestment plan entry covers the version that compounds instead.
For most investors, the small-shareholder exemption is the answer: under $5,000 of credits a year, the rule does not apply. The franking credit calculator shows the credits the rule gates at your marginal rate.
Real-world examples
The two-day hold that lost the $700 credit
Brent bought a fully franked stock the day before the ex-date and sold the day after. The dividend carried a $700 credit, and his year's credits - with the rest of his portfolio - sat at $5,400, above the $5,000 exemption. The rule applied: more than 45 days were required, and he held two. The credit was denied, and the $700 was the price of the play. The franking credits entry covers the credit arithmetic at three marginal rates.
The exemption that covers the retail portfolio
A portfolio of ASX 20 stocks paying roughly $12,000 of fully franked dividends carries roughly $5,140 of credits - just above the $5,000 line. The same portfolio on $11,000 of dividends carries $4,714 of credits, under the line, and the 45-day rule does not apply. The exemption is a cliff, and the credit total is the number to check each June; most retail portfolios sit under it comfortably. The franking credit calculator shows the total at your marginal rate.
The off-market buyback and the same rule
The 45-day rule also gates the deemed dividends in off-market share buybacks. The share buyback entry covers the deemed-dividend split where part of the payment is treated as a franked dividend. The same qualification window and at-risk test apply, which is why the tender arithmetic changes for large shareholders. The rule is one gate across three dividend types: ordinary, special and deemed. The small-shareholder exemption applies here too.
Common mistakes
Mistake: Trading around ex-dates to harvest franking credits.
Why it bites you: The 45-day window makes the play a 45-day price exposure, and the at-risk test denies the short version. Brent's two-day hold cost a $700 credit.
Mistake: Assuming the exemption covers every year.
Why it bites you: The $5,000 line is on the year's total credits, not each dividend. A portfolio drift over the line re-introduces the rule without any change in habit.
Mistake: Counting the buy and sell dates in the 45 days.
Why it bites you: The acquisition and disposal days are excluded, so a 45-day calendar hold is a 43-day rule hold. The window is wider than the calendar suggests.
Mistake: Assuming the rule does not apply to buybacks.
Why it bites you: Off-market buybacks with deemed dividends face the same qualification window. The tender arithmetic changes for shareholders above the exemption.
Ivy's take
I spent an evening with the ATO's 45-day rule guidance so you don't have to, and the rule is two tests and one exemption: the holding window, the at-risk threshold, and the $5,000 line that covers most retail portfolios. I ran the same dividend through the two-day hold and the 46-day hold, and the credit was the entire difference. The exemption is the part nobody reads, and the part that answers the question.
Brent's two-day hold is the case study - a $700 credit denied on a play the rule was written to stop. I keep the rule simple: let the exemption do the work, and never build a strategy on the credits the rule can deny.
Related jargon, defined
- Franking credits
- Credits for company tax attached to dividends, claimed at your marginal rate.
- Ex-date
- The date that decides who receives the dividend; the rule's qualification window hangs on it.
- At-risk test
- The requirement to be exposed to at least 10 percent of the dividend amount.
- Dividend stripping
- Buying around the ex-date to harvest credits; the play the rule stops.
- Off-market buyback
- A buyback where part of the payment is a deemed franked dividend, also gated by the rule.
- Qualification period
- The 45 days before to 45 days after the ex-date, the envelope the holding days must land in.
Frequently asked questions
What is the 45-day holding rule?+
It is the ATO's condition for claiming franking credits: hold the shares for more than 45 days around the ex-date and be at risk of at least 10 percent of the dividend. The acquisition and disposal days do not count.
Does the 45-day rule apply to me?+
Not if your franking credits are $5,000 or less for the year - the small shareholder exemption applies. Larger credit totals face the full rule, including the at-risk test.
Do preference shares have a different holding period?+
Yes - preference shares carry a 90-day version of the same rule. The qualification window and the at-risk test scale with it.
Why does the 45-day rule exist?+
It stops dividend stripping - buying before the ex-date and selling after to harvest credits without holding the risk. The at-risk test is the second gate on the same play.
Does the rule apply to share buybacks?+
Yes - off-market buybacks where part of the payment is a deemed franked dividend face the same qualification window. The tender arithmetic changes for shareholders above the $5,000 exemption.
Disclaimer: This information is general in nature and does not constitute financial or legal advice. Always consult a qualified professional for your specific situation.
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Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.