Dividend Stripping (45-Day Rule) | SMSF Warehouse (2024)

FAQs

What is the 45 day rule for dividend stripping? ›

The 45 day rule (sometimes called dividend stripping) requires shareholders to have held the shares 'at risk' for at least 45 days (plus the purchase day and sale day) in order to be eligible to claim franking credits in their tax returns.

The 45-Day Rule requires resident taxpayers to hold shares at risk for at least 45 days (90 days for preference shares, not including the day of acquisition or disposal) in order to be entitled to Franking Credits.

Holding period rule

To be eligible for a tax offset for the franking credit you are required to hold the shares 'at risk' for at least 45 days (90 days for preference shares) not counting the day of acquisition or disposal. The holding period rule only needs to be satisfied once for each purchase of shares.

Investors. For an investor, dividend stripping provides dividend income, and a capital loss when the shares fall in value (in normal circumstances) on going ex-dividend. This may be profitable if income is greater than the loss, or if the tax treatment of the two gives an advantage.

If (after applying the LIFO method) the shares or interest in shares weren't held at risk for a continuous period of at least 45 days during the relevant qualification period, the taxpayer isn't a qualified person in relation to the franked dividend. They won't be entitled to the relevant franking credits.

Enacted in 2012, the Stop Trading on Congressional Knowledge (STOCK) Act requires members of Congress to report stock trades within 45 days of the transaction; failure to do so can result in civil and criminal penalties.

Dividend Stripping Example

However, after the dividend payout, the share price typically drops, say to Rs 490. This drop reflects the payout value being removed from the company's assets. The investor then sells the shares at the reduced price, receiving Rs 49,000 (100 shares x Rs 490).

Under Rule 45(a) the period expires on the next day that is not a Sunday or legal holiday. If the following Monday is a legal holiday, under Rule 45(a) the period expires on Tuesday. Three days are then added—Wednesday, Thursday, and Friday as the third and final day to act unless that is a legal holiday.

Old v/s New Provision for Taxability of Dividend Income

However, the Finance Act, 2020 changed the method of dividend taxation. Henceforth, all dividend received on or after 1 April 2020 is taxable in the hands of the investor/shareholder. The DDT liability on companies and mutual funds stands withdrawn.

Summary: New Tax Residency Rules Australia

If you spend fewer than 45 days in the country, you're not a resident of Australia. If you spend between 45 and 183 days in Australia, you must undertake the factor test. Any Australian citizen with a place to live, family, and economic interest in Australia is a resident.

What is the 45 day rule for trust distributions? ›

The current NOPA procedure for trust administrations requires a notice period of 45 days, during which a beneficiary may object to the proposed course of action. (Probate Code section 16502). Absent a formal objection during that period, the beneficiary is deemed to have consented to the proposed course of action.

Yes, the 45-day rule in a 1031 tax deferred exchange can be extended under specific circumstances. The IRS allows for an extension of the 45-day identification period in cases of natural disasters, presidentially declared disasters, or terroristic or military actions.

Dividend stripping is a short-term trading strategy. It's when you buy a stock shortly before a dividend has been declared with the intention of selling it immediately after the dividend is paid.

Large enterprises or entities are obligated to pay Micro, Small and Medium Enterprises (MSMEs) within 45 days, depending on the presence of a written agreement. In the absence of a written agreement, payment is required to be made within 15 days.

Companies and mutual funds can distribute profits by issuing bonus shares without attracting taxes. Bonus stripping is a tax planning strategy where investors acquire original units before a bonus issue, sell them for a loss, and retain bonus units to benefit from lower tax rates on long-term capital gains.

In Treasury Direct, when you buy a Treasury marketable security, you must hold it in your TreasuryDirect account for 45 days before selling or transferring it. This means you can't sell or transfer a 4-week bill from TreasuryDirect because it matures in less than 45 days.

Dividend stripping is an investment strategy where investors buy shares of a company just before a dividend is declared and sell them after it's paid out. The aim is to capture the dividend income, often benefiting from tax advantages.

Here's how they work: To be eligible to receive a dividend declared for a stock, you must buy the stock, or already own it, before the ex-dividend date (otherwise known as the ex-date). That purchase cutoff time is two days before the date of record.