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When the simplified imputation system was introduced (with effect from 1 July 2002), the holding period and related payment rules (contained in former Div 1A of ITAA 1936) were not included. However, due to savings provisions, the rules have continued to apply. The Assistant Treasurer announced in media release No 008/2103, issued on 14 December 2013, that the Government does not intend to proceed with further legislation in this area.

In the 2006-07 Budget, the Government announced that it intended to exclude certain income beneficiaries of testamentary trusts from the franking credit holding rules, with effect from 1 July 2002.

The franking credit holding period rules prevent franking credit trading by denying franking credits and associated tax offsets to taxpayers who have not held shares at risk for more than 45 days. This measure was intended to assist beneficiaries of testamentary trusts, who have a vested interest in the dividend income of the trust, but do not have current beneficial ownership of the underlying shares (such as life tenants) by excluding them from the holding period rules.

On 14 December 2013, the Government also announced that it would not proceed with the components of the simplified imputation system initiative, which included a re-write of the imputation integrity rules.

The ATO advises that Tax and Superannuation Laws Amendment (2014 Measures No 2) Act 2014 has been enacted that provides protection for taxpayers who have under-assessed their tax position on the basis of previously announced changes that are no longer proceeding.

This legislation provides protection for taxpayers who have acted in anticipation of the ‘franking credits available to life tenants’ measure outlined above, if the taxpayer meets certain criteria. The protection applies for the period that the announcement of a retrospective change to the law was on foot, which for this measure was the period from 20 March 2006 to 14 December 2013.

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