As 30 June approaches, one of the annual end year processes that may be required of a not for profit (NFP) that receives dividend income from their investment portfolio or trust distributions is to apply for a refund of the franking credits attached to the dividends/distributions.
The process of applying for a franking credit refund is pretty straight forward and generally doesn’t pose too many problems. It is important to note a few things are changing in regards to how you go about claiming the refund for the 2021/22 year and beyond.
Prior to 2021/22 an eligible NFP (being an organisation that had previously made claim) would receive an ‘application for a refund of franking credits’ form by post from the ATO, complete and lodge the completed the form with the ATO.
For the 2021/22 and future years the Application for refund of franking credits is available for download from the ATO website as a fillable PDF.
Eligible NFPs will no longer receive the application by post going forward so must be proactive in seeking refunds.
Lodgement of the completed form is still required to be done manually by post to the ATO.
It is not clear whether the ATO will refine their system to enable electronic lodgement going forward. We would certainly hope so.
Once the application is lodged with the ATO, if a NFP needs to change any of the details provided it must write to the ATO explaining the change and the reasons for the change. The letter requesting for the change must be signed by an authorised person and include the following details:
- full name of authorised person;
- postal address of the NFP and its ABN; and
- contact phone number.
Eligibility for a refund
Only NPFs that are eligible for a refund of franking credits may apply ( for 2021/22 and beyond by downloading the fillable Application for refund of franking credits form).
Eligibility is limited to certain types of NFPs including:
- ACNC registered charities, endorsed by the ATO as exempt from income tax;
- income tax exempt deductible gift recipients endorsed by the ATO or listed by name in the tax law;
- income tax exempt relief funds declared by the Treasurer to be a developing country relief fund;
- prescribed income tax exempt entities eligible for a refund under relevant regulations; and
- an exempt institution eligible for a refund under an Australian Government law other than the income tax law (e.g. under enabling legislation).
In addition to the above, the relevant NPF must also satisfy the residency requirement and this is met where the NPF has a physical presence in Australia, and to that extent incurs expenditure and pursue its objectives principally in Australia at all times during the relevant income year.
The ATO’s view with regard to the “in Australia” requirement is set out in Taxation Ruling TR 2019/6. Suffice to say, an eligible NPF (of the type outlined above) that is established in Australia and makes operational and strategic decisions mainly in Australia would satisfy this requirement.
What to watch out for?
As a result of the changed procedures eligible NFPs need to make sure that the claim process is actually completed.
Not often but occasionally we are contacted by an NFP that receives franked income but has not claimed franking credit refunds. Fortunately retrospective claims are generally possible but a much better idea is to ensure the responsibility for the making the claim is allocated and confirmed as actioned as part of year end financial to do list.