Ex-dividend dates, record dates and who gets paid

The record date is the date used to decide who is entitled to a dividend: the holders on the register that day receive it. Because trades take time to settle, the ASX glossary explains, the ex-dividend date is usually set one business day before the record date. When you sell, Moneysmart says, the money reaches your brokerage account two business days after the trade day, the T+2 settlement period; the glossary also refers to settling on a trade date plus two business days basis.

Put those two definitions together and the dates line up. The drawing below is an illustration of that arithmetic, not any company’s timetable.

The practical reading: the person who owns the shares on the ex-dividend date is not necessarily the person who is paid. If you held the shares before the ex-dividend date and sell on or after it, you keep the dividend; if you buy on or after it, you do not receive it.

The ex-dividend date is also the hinge of the ATO’s holding period rule for franking credits. The ATO defines it in the same way: shares go ex-dividend the day after the final day on which a purchase still carries the right to the dividend.

• The 45 days. If you have not already satisfied the rule before the ex-dividend day, the holding period starts the day after you acquired the shares, and you must hold them at risk for 45 days, or 90 days for certain preference shares, and the day you dispose of them does not count.
• Who it applies to. The rule does not apply if your total franking credit entitlement for the year is below $5,000, under the small shareholder exemption.
• Shares bought in batches. When you buy substantially identical shares over time, the ATO identifies which ones pass the rule on a last-in, first-out basis.

The ATO’s example

A shareholder has held 10,000 shares for 12 months. She buys 4,000 more 10 days before the shares go ex-dividend, then sells 4,000 shares 20 days after the ex-dividend date. Her franking credits for the year are over $5,000. On the last-in, first-out basis, the shares she sold are treated as held for less than 45 days, so she cannot claim the franking credits on those 4,000.

The related payments rule uses the ex-dividend date too: where a related payment is made, you must hold the shares at risk from the 45th day before to the 45th day after the day they went ex-dividend, or 90 days either side for preference shares. Both rules are set out in franking credits.

The record date decides who is paid; the payment date decides when the dividend is income. Your statement shows the date paid, and that date determines which income year the dividend belongs to. A dividend paid by cheque is treated as paid on the day the company posted the cheque, not the day you banked it. A dividend paid late in June and one paid early in July can therefore fall in different tax returns, because each return covers an income year from 1 July to 30 June.

• Announcements. Listed companies are generally required to keep shareholders up to date through results, annual reports and announcements, which for Australian companies are published on the ASX website.
• The ASX dividend search. The ASX points to its dividend search for dividend information, searching up to 10 company names or codes at a time, and historical dividends appear on each company’s page.
• Your own payments. For dividends paid to you, the ASX says to contact the company’s share registry.