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This is a Bill, not an Act. For current law, see the Acts databases.
2002
The Parliament of
the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
New
Business Tax System (Imputation) Bill
2002
No. ,
2002
(Treasury)
A Bill
for an Act to amend the taxation law to implement a simplified imputation
system, and for related purposes
Contents
Income Tax Assessment Act
1997 3
Income Tax Assessment Act
1936 83
Income Tax (Transitional Provisions) Act
1997 83
Income Tax Assessment Act
1936 85
Income Tax (Transitional Provisions) Act
1997 85
A Bill for an Act to amend the taxation law to implement
a simplified imputation system, and for related purposes
The Parliament of Australia enacts:
This Act may be cited as the New Business Tax System (Imputation) Act
2002.
This Act commences on the day on which it receives the Royal
Assent.
Each Act that is specified in a Schedule to this Act is amended or
repealed as set out in the applicable items in the Schedule concerned, and any
other item in a Schedule to this Act has effect according to its
terms.
Income Tax Assessment Act
1997
1 After Part 3-5
Insert:
This Division provides an overview of the imputation system.
Table of sections
200-5 The imputation system
200-10 Franking a distribution
200-15 The franking account
200-20 How a distribution is franked
200-25 A corporate tax entity must not give its members
credit for more tax than the entity has paid
200-30 Benchmark rule
200-35 Effect of receiving a franked
distribution
200-40 An Australian corporate tax entity can pass the
benefit of having received a franked distribution on to its
members
200-45 Special rules for franking by
some entities
The *imputation system partially
integrates the income tax liabilities of an Australian corporate tax entity and
its members by:
(a) allowing the entity, when distributing profits to its members, to pass
to those members credit for income tax paid by the entity on those profits;
and
(b) allowing the entity’s Australian members to claim a tax offset
for that credit; and
(c) allowing the entity’s Australian members to claim a refund if
they are unable to fully utilise the tax offset in reducing their income
tax.
When an Australian corporate tax entity distributes profits to its
members, the entity has the option of passing to those members credit for income
tax paid by the entity on the profits. This is done by franking the
distribution.
(1) A franking account is used to keep track of income tax paid by the
entity, so that the entity can pass to its members the benefit of having paid
that tax when a distribution is made.
(2) Each corporate tax entity has a franking account.
(3) Typically, a corporate tax entity receives a credit in the account if
the entity pays income tax or receives a franked distribution. A credit in the
franking account is called a franking credit.
(4) Typically, a corporate tax entity receives a debit in the account if
the entity receives a refund of tax or franks a distribution to its members. A
debit in the franking account is called a franking debit.
(1) A corporate tax entity franks a distribution by allocating a franking
credit to it.
(2) The amount of the franking credit on the distribution is the amount
specified in a statement that accompanies the distribution.
(3) Only some kinds of distribution can be franked. These are called
frankable distributions.
(1) A corporate tax entity must not frank a distribution from profits with
a franking credit that exceeds the maximum amount of income tax that could have
been paid by the entity on the profits distributed.
(2) If a distribution is franked in excess of this limit, the entity will
be taken to have franked the distribution with the maximum franking credit for
the distribution.
(1) All frankable distributions made within a particular period must be
franked to the same extent. This is the benchmark rule.
(2) It is designed to ensure that one member of a corporate tax entity is
not preferred over another by the manner in which distributions are
franked.
(1) Under Division 207, if an Australian member of a corporate tax
entity receives a franked distribution, the member can usually offset, against
the member’s own income tax liability, income tax paid by the entity on
the profits underlying the distribution.
(2) The tax offset to which the member is entitled is equal to the
franking credit on the distribution.
Note 1: A member may be entitled to a refund under
Division 67 if the sum of the tax offset and certain other tax offsets
exceeds the amount of income tax that the member would have to pay if the member
had not got those tax offsets.
Note 2: If the member is not a resident, the tax effects of
receiving a distribution will be dealt with under Division 11A of
Part III of the Income Tax Assessment Act 1936, and
Subdivision 207-D of this Part.
If an Australian corporate tax entity receives a franked distribution, it
can pass the benefit of having received a franking credit on the distribution to
its own members by franking distributions to those members.
There are special rules to deal with:
(a) venture capital franking by a pooled development fund; and
(b) franking by life insurance companies; and
(c) franking by exempting companies and former exempting
companies.
Table of sections
201-1 Objects
201-5 Application of this Part
(1) The main object of this Part is to allow certain
*corporate tax entities to pass to their
*members the benefit of having paid income tax
on the profits underlying certain
*distributions.
(2) The other objects of this Part are to ensure that:
(a) the imputation system is not used to give the benefit of income tax
paid by a *corporate tax entity to
*members who do not have a sufficient economic
interest in the entity; and
(b) the imputation system is not used to prefer some members over others
when passing on the benefits of having paid income tax; and
(c) the *membership of a corporate tax
entity is not manipulated to create either of the outcomes mentioned in
paragraphs (a) and (b).
Subject to the rules on the application of this Part set out in the
Income Tax (Transitional Provisions) Act 1997, this Part applies to
events that occur on or after 1 July 2002.
Table of Subdivisions
202-A Franking a distribution
202-B Who can frank a distribution?
202-C Which distributions can be franked?
202-D Amount of the franking credit on a distribution
202-E Distribution statements
An entity can only frank a distribution if certain conditions are met.
These conditions are set out in this Subdivision.
Table of sections
Operative provisions
202-5 Franking a distribution
[This is the end of the Guide.]
An entity franks a
*distribution if:
(a) the entity is a *franking entity that
satisfies the *residency requirement when the
distribution is made; and
(b) the distribution is a *frankable
distribution; and
(c) the entity allocates a *franking
credit to the distribution.
Note 1: Division 205 deals with a corporate tax
entity’s franking account and sets out when credits, known as franking
credits, and debits, known as franking debits, arise in that
account.
Note 2: The mechanism by which an entity allocates a
franking credit to a distribution (for example, whether it is done by resolution
or some other means) is determined by the entity.
Generally, a corporate tax entity that is resident at the time a
distribution is made, can frank the distribution.
There are some exceptions.
Table of sections
Operative provisions
202-15 Franking entities
202-20 Residency requirement when making a
distribution
[This is the end of the Guide.]
An entity is a franking entity at a particular time
if:
(a) it is a *corporate tax entity at that
time; and
(b) it is not a *life insurance company
that is a *mutual insurance company at that
time; and
(c) in a case where the entity is a
*company that is a trustee of a trust—it
is not acting in its capacity as trustee of the trust at that time.
An entity satisfies the residency requirement when making a
*distribution if:
(a) in the case of a *company—the
company is an *Australian resident at that
time; and
(b) in the case of a *corporate limited
partnership—the corporate limited partnership is an Australian resident at
that time; and
(c) in the case of a *corporate unit
trust—the corporate unit trust is a
*resident unit trust for the income year in
which that time occurs; and
(d) in the case of a *public trading
trust—the public trading trust is a resident unit trust for the income
year in which that time occurs.
Generally, distributions that are made out of realised profits can be
franked.
Those distributions that are not frankable are identified.
Table of sections
202-30 Frankable distributions
Operative provisions
202-35 Object
202-40 Frankable distributions
202-45 Unfrankable distributions
Distributions and non-share dividends are frankable unless it is
specified that they are unfrankable.
[This is the end of the Guide.]
The object of this Subdivision is to ensure that only distributions
equivalent to realised taxed profits can be franked.
(1) A *distribution is a frankable
distribution, to the extent that it is not unfrankable under
section 202-45.
(2) A *non-share dividend is a
frankable distribution, to the extent that it is not unfrankable
under section 202-45.
The following are unfrankable:
(a) a distribution by a co-operative company as defined in
section 117 of the Income Tax Assessment Act 1936 for which a
deduction is allowable under section 120 of that Act;
(b) a distribution to which paragraph 24J(2)(a) of that Act applies that
is taken under section 24J of that Act to be derived from sources in a
prescribed Territory, as defined in paragraph 24BB(a) of that Act (distributions
by certain *corporate tax entities from sources
in Norfolk Island);
(c) where the purchase price on the buy-back of a
*share by a
*company from one of its
*members is taken to be a dividend under
section 159GZZZP of that Act—so much of that purchase price as
exceeds what would be the market value (as normally understood) of the share at
the time of the buy-back if the buy-back did not take place and were never
proposed to take place;
(d) a distribution in respect of a
*non-equity share;
(e) a distribution that is taken under subsection 46M(3) or paragraph
46M(4)(a) of that Act not to be a *frankable
dividend (dividends paid from certain accounts such as
*share capital accounts);
(f) an amount that is taken to be an unfrankable distribution under
section 160APAAAA or 160APAAAB of that Act;
(g) an amount that is taken to be a dividend for any purpose under any of
the following provisions:
(i) Division 7A of Part III of that Act (distributions to
entities connected with a *private
company);
(ii) section 108 of that Act (loans to shareholders and
associates);
(iii) section 109 of that Act (excessive payments to shareholders,
directors and associates);
(iv) section 47A of that Act (distribution
benefits—CFCs);
(h) an amount that is taken to be an unfranked dividend for any
purpose:
(i) under section 45 of that Act (streaming bonus shares and
unfranked dividends);
(ii) because of a determination of the Commissioner under section 45C
of that Act (streaming dividends and capital benefits).
The amount of the franking credit on a distribution is that stated in the
distribution statement, unless the amount stated exceeds the maximum franking
credit for the distribution.
In that case, the amount of the franking credit on the distribution is
taken to be the maximum franking credit for the distribution, worked out under
this Subdivision.
Table of sections
202-55 What is the maximum franking credit for a frankable
distribution?
Operative provisions
202-60 Amount of the franking credit on a
distribution
202-65 Where the franking credit stated in the distribution
statement exceeds the maximum franking credit for the
distribution
The maximum franking credit for a distribution is equivalent to the
maximum amount of income tax that the entity making the distribution could have
paid, at the current corporate tax rate, on the profits underlying the
distribution.
[This is the end of the Guide.]
(1) The amount of the *franking credit on
a *distribution is that stated in the
*distribution statement for the distribution,
unless that amount exceeds the *maximum
franking credit for the distribution.
(2) The maximum franking credit for a
*distribution is worked out using the
formula:
If the amount of a *franking credit
stated in a *distribution statement for a
*distribution exceeds the
*maximum franking credit for the distribution,
the amount of the franking credit on the distribution is taken to be the amount
of the maximum franking credit for the distribution, and not the amount stated
in the distribution statement.
An entity that makes a frankable distribution must give the recipient a
statement setting out details of the distribution.
Table of sections
Operative provisions
202-75 Obligation to give a distribution
statement
202-80 Distribution statement
202-85 Changing the franking credit on a distribution by
amending the distribution statement
[This is the end of the Guide.]
(1) An entity that makes a *frankable
distribution must give the recipient a
*distribution statement.
(2) The statement must be given:
(a) if the entity is not a *private
company for the income year in which the
*distribution is made—on or before the
day on which the distribution is made; or
(b) if the entity is a private company for the income year in which the
distribution is made:
(i) where the Commissioner has not made a determination under
subsection (3)—before the end of 4 months after the end of the income
year in which the distribution is made; or
(ii) where the Commissioner makes a determination under
subsection (3) that the statement may be given before a later
time—before that time.
Note: A consequence of the rule in paragraph (2)(b) is
that private companies can, in effect, frank retrospectively.
(3) The Commissioner may determine in writing that a
*private company may give the statement before
a time that is later than 4 months after the end of the income year in which the
distribution is made.
(1) A distribution statement is a statement made in
accordance with this section.
(2) The statement must be in the
*approved form.
(3) The statement must:
(a) identify the entity making the distribution; and
(b) state the date on which the distribution is made; and
(c) state the amount of the distribution; and
(d) state that there is a *franking
credit of an amount specified on the distribution; and
(e) state the *franking percentage for
the distribution; and
(f) state the amount of any *withholding
tax that has been deducted from the distribution by the entity; and
(g) include any other information required by the
*approved form that is relevant to imputation
generally or the distribution.
Note: Under the Taxation Administration Act 1953 it
is an offence to fail to give a statement required under this Subdivision, or
make a misleading statement in connection with a distribution (whether franked
or not).
Changing the franking credit on a specified distribution
(1) The Commissioner may, on application by an entity, determine in
writing that the entity may change the
*franking credit on a specified
*distribution by amending the
*distribution statement for the
distribution.
(2) In deciding whether to make a determination under subsection (1),
the Commissioner must have regard to:
(a) whether the date for lodgment of an
*income tax return by the recipient of the
specified *distribution for the income year in
which the distribution was made has passed; and
(b) whether, if the *franking credit on
the specified distribution were changed in accordance with the entity’s
application, there would be any difference in the
*withholding tax liability of the recipient;
and
(c) whether amending the distribution statement as requested by the entity
would lead to a breach of the *benchmark rule,
or any of the rules in Division 204 (the anti-streaming rules);
and
(d) whether amending the distribution statement as requested by the entity
would lead to a new *benchmark franking
percentage being set for the entity for the
*franking period in which the distribution was
made; and
(e) any other matters that the Commissioner considers relevant.
Changing the franking credits on a specified class of
distributions
(3) The Commissioner may, on application by an entity, determine in
writing that the entity may change the
*franking credits on
*distributions of a specified class by amending
the *distribution statements for the
distributions.
(4) In deciding whether to make a determination under subsection (3),
the Commissioner must have regard to:
(a) the number of recipients to whom an amended
*distribution statement would be made;
and
(b) whether the date for lodgment of
*income tax returns by recipients of
*distributions of the specified class for the
income year in which the distributions were made has passed; and
(c) whether, if the *franking credit on
the specified distributions were changed in accordance with the entity’s
application, there would be any difference in the
*withholding tax liability of the recipients;
and
(d) whether amending the distribution statements as requested by the
entity would lead to a breach of the *benchmark
rule, or any of the rules in Division 204 (the anti-streaming rules);
and
(e) whether amending the distribution statements as requested by the
entity would lead to a new *benchmark franking
percentage being set for the entity for the
*franking period in which the distributions
were made; and
(f) any other matters that the Commissioner considers relevant.
Applying to the Commissioner
(5) The entity must:
(a) make its application under this section in writing; and
(b) include in the application all information relevant to the matters to
which the Commissioner must have regard under:
(i) subsection (2), if the application relates to a
*distribution; or
(ii) subsection (4), if the application relates to a class of
distributions.
Review
(6) If the entity or a *member of the
entity is dissatisfied with a determination under subsection (3), the
entity or member may object to it in the manner set out in Part IVC of the
Taxation Administration Act 1953.
Distributions within a particular period must all be franked to the same
extent.
Table of sections
203-5 Benchmark rule
203-10 Benchmark franking percentage
Operative provisions
203-15 Object
203-20 Application of the benchmark rule
203-25 Benchmark rule
203-30 Setting a benchmark franking
percentage
203-35 Franking percentage
203-40 Franking periods—where the entity is not a
private company
203-45 Franking period—private
companies
203-50 Consequences of breaching the benchmark
rule
203-55 Commissioner’s powers to permit a departure
from the benchmark rule
(1) A corporate tax entity must frank all frankable distributions made
within a particular period at a franking percentage set as the benchmark for
that period. This is the benchmark rule.
(2) The benchmark rule does not apply to some corporate tax entities.
Those entities are identified in section 203-20.
(1) The benchmark franking percentage for an entity is set by reference to
the franking percentage for the first frankable distribution made by the entity
during the relevant period.
(2) An entity has a benchmark franking percentage, even if it is not
subject to the benchmark rule.
[This is the end of the Guide.]
The object of this Subdivision is to ensure that one
*member of a
*corporate tax entity is not preferred over
another when the entity *franks
*distributions.
(1) The *benchmark rule does not apply to
a company in a *franking period if:
(a) at all times during the franking period, the company is a
*listed public company that, under its
constituent documents, must *frank all
*distributions made to its
*members under a single resolution at the same
*franking percentage; and
(b) any distributions made by the company during the period are made to
all members of the company.
(2) The *benchmark rule does not apply to
a company in a *franking period if, at all
times during the franking period, the company is a
*listed public company with a single
*class of
*membership interest.
An entity must not make a *frankable
distribution whose *franking percentage differs
from the entity’s *benchmark franking
percentage for the *franking period in which
the distribution is made. This is the benchmark rule.
Note: If a corporate tax entity franks a distribution in
breach of this rule, the distribution will still be a franked distribution,
although consequences will flow under section 203-50.
The benchmark franking percentage for an entity for a
*franking period is the same as the
*franking percentage for the first
*frankable distribution made by the entity
within the period.
Note: If no frankable distribution is made during the
period, there is no benchmark franking percentage for the
period.
(1) Subject to subsection (2), the franking percentage
for a *frankable distribution is worked out
using the formula:
(2) If the *franking percentage for a
*frankable distribution would exceed 100% if it
were worked out under subsection (1), it is taken to be 100%.
(1) Use this section to work out the franking periods for an entity in an
income year where the entity is not a *private
company for the income year.
(2) If the entity’s income year is a period of 12 months, each of
the following is a franking period for the entity in that
year:
(a) the period of 6 months beginning at the start of the entity’s
income year;
(b) the remainder of the income year.
(3) If the entity’s income year is a period of 6 months or less, the
franking period for the entity in that year is the same as the
income year.
(4) If the entity’s income year is a period of more than 6 months
and less than 12 months, each of the following is a franking period
for the entity in that year:
(a) the period of 6 months beginning at the start of the entity’s
income year;
(b) the remainder of the income year.
(5) If the entity’s income year is a period of more than 12 months,
each of the following is a franking period for the entity in that
year:
(a) the period of 6 months beginning at the start of the entity’s
income year (the first franking period);
(b) the period of 6 months beginning immediately after the end of the
first franking period;
(c) the remainder of the income year.
The franking period for an entity that is a
*private company for an income year is the same
as the income year.
(1) If an entity makes a *frankable
distribution in breach of the *benchmark
rule:
(a) the entity is liable to pay over-franking tax imposed by the New
Business Tax System (Over-franking Tax) Act 2002 if the
*franking percentage for the
*distribution exceeds the entity’s
*benchmark franking percentage for the
*franking period in which the distribution is
made; and
(b) a *franking debit arises in the
entity’s *franking account if the
franking percentage for the distribution is less than the entity’s
benchmark franking percentage for the franking period in which the distribution
is made.
(2) Use the following formula to work out:
(a) in a case dealt with under paragraph (1)(a)—the amount of
the *over-franking tax; and
(b) in a case dealt with under paragraph (1)(b)—the amount of
the *franking debit:
where:
franking % differential is the difference between:
(a) the *franking percentage for the
*frankable distribution; and
(b) either:
(i) if subparagraph (ii) does not apply—the entity’s
*benchmark franking percentage for the
*franking period in which the
*distribution is made; or
(ii) if the Commissioner in the exercise of the Commissioner’s
powers under subsection 203-55(1), permits the entity to frank the distribution
at a different franking percentage—that percentage.
Example: An entity makes 3 successive frankable
distributions in a franking period. Each of those distributions is represented
in the following diagram. The franking percentage for the first distribution is
40%, and so the entity’s benchmark franking percentage for the period is
40%.
Note: Distribution 2 is under-franked to the extent of the
franking % differential. This is used to work out the amount of the
under-franking debit under subsection (2).
Distribution 3 is over-franked to the extent of the
franking % differential. This is used to work out the amount of over-franking
tax on the distribution under the New Business Tax System (Over-franking Tax)
Act 2002. The amount of the tax is calculated using the same formula as that
set out in subsection (2).
(3) A *franking debit arising under
paragraph (1)(b) is in addition to any franking debit that would otherwise
arise for the entity because of the
*distribution.
(4) The *franking debit arises on the day
on which the *frankable distribution is
made.
Powers of the Commissioner
(1) The Commissioner may, on application by an entity, make a
determination in writing permitting the entity to
*frank a
*distribution at a
*franking percentage that differs from the
entity’s *benchmark franking percentage
for the *franking period in which the
distribution is made.
(2) Because the *benchmark rule is an
integral part of the imputation system, the Commissioner’s powers under
this section may only be exercised in extraordinary circumstances.
Matters to which the Commissioner must have regard in exercising the
power
(3) In deciding whether there are extraordinary circumstances justifying
the exercise of the Commissioner’s power to make a determination under
subsection (1), the Commissioner must have regard to:
(a) the entity’s reasons for departing, or proposing to depart, from
the *benchmark rule; and
(b) the extent of the departure, or proposed departure, from the benchmark
rule; and
(c) if the circumstances that give rise to the entity’s application
are within the entity’s control, the extent to which the entity has sought
the exercise of the Commissioner’s powers under this section in the past;
and
(d) whether a *member of the entity has
been or will be disadvantaged as a result of the departure, or proposed
departure, from the benchmark rule; and
(e) whether a *member of the entity will
receive greater *imputation benefits than
another member of the entity because a distribution
*franked at a
*franking percentage that differs from the
*benchmark franking percentage for the
*franking period is made to one of them;
and
(f) any other matters that the Commissioner considers relevant.
When may the powers be exercised?
(4) The Commissioner may make a determination under subsection (1)
either before or after the *frankable
distribution is made.
Consequence of the Commissioner exercising the power under this
section
(5) An allocation of a *franking credit
at a percentage specified by the Commissioner in a determination under
subsection (1) is taken to comply with the
*benchmark rule.
Applying to the Commissioner
(6) The entity must:
(a) make its application under this section in writing; and
(b) include in the application all information relevant to the matters to
which the Commissioner must have regard under subsection (3).
Review
(7) If the entity or a *member of the
entity is dissatisfied with the determination under subsection (1), the
entity or member may object to it in the manner set out in Part IVC of the
Taxation Administration Act 1953.
Table of Subdivisions
204-A Objects and application
204-B Linked distributions
204-C Substituting tax-exempt bonus share for franked
distributions
204-D Streaming distributions
204-E Disclosure requirements
Table of sections
204-1 Objects
204-5 Application to non-share dividends
The objects of this Division are to ensure that:
(a) an entity and its *members cannot
avoid the effect of the *benchmark rule by
exploiting the *benchmark franking percentage
of another entity; and
(b) an entity does not stream *franked
distributions and *tax-exempt bonus shares;
and
(c) an entity does not stream
*distributions to members of the entity who
derive a *greater benefit from franking credits
than other members.
(1) The rules in this Division will apply to an entity even if it is not
subject to the benchmark rule.
(2) This Division applies to non-share dividends in the same way as it
applies to distributions.
This Subdivision prevents the exploitation of a corporate tax
entity’s benchmark franking percentage by another corporate tax entity, or
that other entity’s members, by imposing a franking debit where there is
exploitation.
Table of sections
Operative provisions
204-15 Linked distributions
[This is the end of the Guide.]
Franking debit arises where a distribution by one entity is substituted
for a distribution by another
(1) This section gives rise to a
*franking debit if:
(a) the exercise of a choice or selection by a
*member of an entity (the first
entity); or
(b) the member’s failure to exercise a choice or
selection;
has the effect of determining (to any extent) that another entity makes to
one of its members a *distribution (the
linked distribution) that is:
(c) in substitution (in whole or in part) for a distribution by the first
entity to that member or any other member of the first entity; and
(d) unfranked, or *franked at a
*franking percentage that differs from the
first entity’s *benchmark franking
percentage for the *franking period in which
the linked distribution is made.
Note: Division 205 deals with a corporate tax
entity’s franking account and sets out when a debit, known as a franking
debit, arises in that account.
Franking account in which the debit arises
(2) The debit arises in the *franking
account of the entity with the higher
*benchmark franking percentage for the
*franking period in which the linked
distribution is made.
Amount of the debit
(3) The debit is equal to the one that would arise in that
*franking account if the entity had made a
*franked distribution, equal to the linked
distribution, with a *franking percentage equal
to the *benchmark franking percentage for that
entity.
When does the debit arise
(4) The debit arises on the day on which the linked distribution is
made.
Debit is in addition to any other franking debit arising because of the
linked distribution
(5) The debit is in addition to any other debit that arises in an
entity’s *franking account because of the
linked distribution.
Where an entity has no benchmark franking percentage
(6) If an entity has no *benchmark
franking percentage for the *franking period in
which the linked distribution is made, this section applies as if:
(a) in a case where the linked distribution has a
*franking percentage of less than 50%—the
entity had a benchmark franking percentage of 100% for that period;
and
(b) in a case where the linked distribution has a franking percentage
equal to or greater than 50%—the entity had a benchmark franking
percentage of 0% for that period.
This Subdivision prevents the substitution of a tax-exempt bonus share for
a franked distribution by imposing a franking debit on the issue of the share as
if it were a franked distribution.
Table of sections
Operative provisions
204-25 Substituting tax-exempt bonus shares for franked
distributions
[This is the end of the Guide.]
Franking debit arises if tax-exempt bonus shares are issued in
substitution for a franked distribution
(1) This section gives rise to a
*franking debit in an entity’s
*franking account if:
(a) the exercise of a choice or selection by a
*member of the entity; or
(b) the member’s failure to exercise a choice or
selection;
has the effect of determining (to any extent) that the entity issues one or
more *tax-exempt bonus shares, to that member
or another member of the entity, in substitution (in whole or in part) for one
or more *franked distributions by the entity to
that member or another member.
Amount of the debit
(2) The debit is equal to the one that would arise in the entity’s
*franking account if the entity made a
*distribution, equal to the
*franked distributions referred to in
subsection (1), franked at the entity’s
*benchmark franking percentage for the
*franking period in which the shares are
issued.
When does the debit arise
(3) The debit arises on the day when the shares are issued.
Meaning of tax-exempt bonus share
(4) For a *company whose
*shares have no par value, tax-exempt
bonus share means a share issued by the company in the circumstances
mentioned in subsection 6BA(6) of the Income Tax Assessment Act
1936.
(5) For any other *company,
tax-exempt bonus share means a
*share issued by the company to a
*shareholder in the company where:
(a) the amount or value of the share is debited against an amount standing
to the credit of a share premium account of the company; and
(b) no part of the paid-up value of the share is a dividend; and
(c) the share is issued:
(i) as a bonus share; or
(ii) in the circumstances mentioned in subsection 6BA(1) of the Income
Tax Assessment Act 1936, as in force immediately before 1 July
1998.
Where a company has no benchmark franking percentage for the franking
period
(6) If a *company has no
*benchmark franking percentage for the
*franking period in which the
*tax-exempt bonus share is issued, this section
applies as if the entity had a benchmark franking percentage of 100% for that
period.
This Subdivision prevents the streaming of imputation benefits to one
member of a corporate tax entity in preference to another by either imposing a
franking debit or denying an imputation benefit where there is
streaming.
Table of sections
Operative provisions
204-30 Streaming distributions
204-35 When does a franking debit arise if the Commissioner
makes a determination under paragraph 204-30(3)(a)
204-40 Amount of the franking debit
204-45 Effect of a determination under paragraph
204-30(3)(b)
204-50 Assessment and notice of
determination
204-55 Right to review where a determination
made
[This is the end of the Guide.]
Commissioner’s power to make a determination when distributions or
distributions and other benefits are streamed
(1) This section empowers the Commissioner to make determinations if an
entity streams one or more *distributions (or
one or more distributions and the giving of other benefits), whether in a single
*franking period or in a number of franking
periods, in such a way that:
(a) an *imputation benefit is, or apart
from this section would be, received by a
*member of the entity as a result of the
distribution or distributions; and
(b) the member would derive a *greater
benefit from franking credits than another member of the entity; and
(c) the other member of the entity will receive lesser imputation
benefits, or will not receive any imputation benefits, whether or not the other
member receives other benefits.
The member that derives the greater benefit from franking credits is the
favoured member. The member that receives the lesser imputation
benefits is the disadvantaged member.
Examples of other benefits
(2) These are examples of the giving of other benefits:
(a) issuing bonus *shares;
(b) returning paid-up share capital;
(c) forgiving a debt;
(d) the entity or another entity making a payment of any kind, or giving
any property, to a *member or to another person
on a member’s behalf.
Nature of the determination that the Commissioner may make
(3) The Commissioner may make one or more of these
determinations:
(a) that a specified *franking debit
arises in the *franking account of the entity,
for a specified *distribution or other benefit
to a disadvantaged member;
(b) that no *imputation benefit is to
arise in respect of a distribution that is made to a favoured member and
specified in the determination.
A determination must be in writing.
(4) The Commissioner may specify the
*franking debit under paragraph (3)(a) by
specifying the *franking percentage to be used
in working out the amount of the debit.
(5) The Commissioner may specify the
*distribution under paragraph (3)(a) or
(b) by specifying:
(a) the date on which the distribution was made, or the period during
which the distribution was made; and
(b) the member, or class of members, to whom the distribution was
made.
What is an imputation benefit?
(6) A *member of an entity receives an
imputation benefit as a result of a distribution if:
(a) the member is entitled to a *tax
offset under Division 207 as a result of the distribution; or
(b) an amount would be included in the member’s assessable income as
a result of the distribution because of the operation of section 207-40;
or
(c) a *franking credit would arise in the
*franking account of the member as a result of
the distribution; or
(d) the member would not be liable to pay
*withholding tax on the distribution, because
of the operation of paragraph 128B(3)(ga) of the Income Tax Assessment Act
1936.
When does a favoured member derive greater benefit from franking
credits?
(7) The following subsection lists some of the cases in which a
*member of an entity derives a greater
benefit from franking credits than another member of the entity. It is
not an exhaustive list.
(8) A *member of an entity derives a
greater benefit from franking credits than another member of the
entity if any of the following circumstances exist in relation to the other
member in the income year in which the distribution giving rise to the benefit
is made, and not in relation to the first member:
(a) the other member is not an Australian resident;
(b) the other member would not be entitled to any
*tax offset under Division 207 because of
the distribution;
(c) the amount of income tax that, apart from this Division, would be
payable by the other member because of the distribution is less than the tax
offset to which the other member would be entitled;
(d) the other member is a *corporate tax
entity at the time the distribution is made, but no
*franking credit arises for the entity as a
result of the distribution;
(e) the other member is a *corporate tax
entity at the time the distribution is made, but cannot use
*franking credits received on the distribution
to *frank distributions to its own members
because:
(i) it is not a *franking entity;
or
(ii) it is unable to make *frankable
distributions.
If the Commissioner makes a determination giving rise to a
*franking debit in the
*franking account of an entity under paragraph
204-30(3)(a), the debit arises in the franking account of the entity on the day
on which the notice of determination is given to the entity in accordance with
section 204-50.
(1) The amount of the *franking debit
arising because of a determination by the Commissioner under paragraph
204-30(3)(a) must not exceed:
(a) if the specified *distribution has
been *franked—the difference between the
amount of the *franking credit on the
distribution and an amount worked out by multiplying the amount of the
distribution by the highest *franking
percentage at which a distribution to a favoured member is franked; or
(b) if the specified distribution, although
*frankable, has not been franked—an
amount worked out by multiplying the amount of the distribution by the highest
franking percentage at which a distribution to a favoured member is franked;
or
(c) if the specified distribution is
*unfrankable—an amount worked out by
multiplying the amount of the distribution by the highest franking percentage at
which a distribution to a favoured member is franked; or
(d) if the specified benefit is the issue of bonus shares from a share
premium account—an amount worked out by multiplying the amount debited to
the share premium account in respect of the bonus shares by the highest franking
percentage at which a distribution to a favoured member is franked; or
(e) if some other benefit is specified—an amount worked out by
multiplying the value of the benefit by the highest franking percentage at which
a distribution to a favoured member is franked.
(2) In specifying the *franking debit,
the Commissioner must have regard to:
(a) any *franking debit already arising
in the *franking account of the entity under
paragraph 203-50(1)(b) because the entity franked the specified
*distribution in breach of the
*benchmark rule; and
(b) any franking debit already arising in the franking account of the
entity, because of the specified distribution or benefit, under
section 204-15 (about linked distributions) or section 204-25 (about
substituting *tax-exempt bonus shares for
*franked distributions).
If the Commissioner makes a determination denying an
*imputation benefit under paragraph
204-30(3)(b), the determination has effect according to its terms.
(1) A determination under subsection 204-30(3) does not form part of an
assessment.
(2) The Commissioner must give notice in writing of the
determination:
(a) in a case where the Commissioner determines that a
*franking debit is to arise in the
*franking account of an entity under paragraph
204-30(3)(a)—to the entity; and
(b) in a case where a favoured member is denied an
*imputation benefit under paragraph
204-30(3)(b)—to the favoured member.
(3) If the Commissioner makes a determination denying an
*imputation benefit under paragraph
204-30(3)(b) on a *distribution made by a
*listed public company, the Commissioner is
taken to have served notice in writing of the determination on the favoured
member if the Commissioner causes a notice to be published in a daily newspaper
that circulates generally in each State, the Australian Capital Territory and
the Northern Territory. The notice is taken to have been served on the day on
which the publication takes place.
(4) A notice under this section may be included in a notice of
assessment.
If a taxpayer to whom a determination relates is dissatisfied with the
determination, the taxpayer may object to it in the manner set out in
Part IVC of the Taxation Administration Act 1953.
This Subdivision requires an entity to notify the Commissioner where there
is a significant difference in its benchmark franking percentage over time, so
that the Commissioner can assess whether there is streaming.
Table of sections
Operative provisions
204-70 Application of this Subdivision
204-75 Notice to the Commissioner
204-80 Commissioner may require information where the
Commissioner suspects streaming
This Subdivision does not apply to an entity to whom the benchmark rule
does not apply.
Note: Section 203-20 identifies the entities to whom
the benchmark rule does not apply.
(1) An entity must notify the Commissioner in writing if the
*benchmark franking percentage for the entity
for a *franking period (the current
franking period) differs significantly from the benchmark franking
percentage for the entity for the last franking period in which a
*frankable distribution was made (the
last relevant franking period).
(2) An entity’s *benchmark franking
percentage for the current franking period differs significantly
from its benchmark franking percentage for the last relevant franking
period if it has increased or decreased by an amount that is greater than the
amount worked out using the following formula:
(3) The notice must also state:
(a) the *benchmark franking percentage
for the current franking period; and
(b) the benchmark franking percentage for the last relevant franking
period.
(4) The notice must be in the *approved
form.
(1) If the *benchmark franking percentage
for an entity for a *franking period (the
current franking period) *differs
significantly from the benchmark franking percentage for the entity for the last
franking period in which a *frankable
distribution was made (the last relevant franking period), the
Commissioner may request the entity to give the Commissioner the following
information:
(a) the entity’s reasons for setting a benchmark franking percentage
for the current franking period that differs significantly from the benchmark
franking percentage for the last relevant franking period; and
(b) the *franking percentages for all
*frankable distributions made in the current
franking period and the last relevant franking period; and
(c) details of any other benefits given to the entity’s
*members, either by the entity or an
*associate of the entity, during the period
beginning at the beginning of the last relevant franking period and ending at
the end of the current franking period; and
(d) whether any member of the entity has derived, or will derive, a
*greater benefit from franking credits than
another member of the entity as a result of the variation in the benchmark
franking percentage between the current franking period and the last relevant
franking period; and
(e) any other information required by the
*approved form that is relevant in determining
whether the entity is streaming
*distributions.
(2) The entity must comply with the Commissioner’s
request.
This Division:
• creates a franking account for each entity that is, or has been, a
corporate tax entity; and
• identifies when franking credits and debits arise in those accounts
and the amount of those credits and debits; and
• identifies when there is a franking surplus or deficit in the
account; and
• creates a liability to pay franking deficit tax if the account is
in deficit at certain times.
Table of sections
205-5 The franking account
Operative provisions
205-10 Each entity that is or has been a corporate tax
entity has a franking account
205-15 Franking credits
205-20 Paying a PAYG instalment or income
tax
205-25 Residency requirement for an event giving rise to a
franking credit or franking debit
205-30 Franking debits
205-35 Refund of income tax
205-40 Franking surplus and deficit
205-45 Franking deficit tax
205-50 Deferring franking deficit
(1) Each entity that is, or has ever been, a corporate tax entity has a
franking account.
(2) The payment of a PAYG instalment or income tax will generate a
franking credit in that account. The amount of the credit is equal to the amount
of tax paid. The receipt of a franked distribution by an entity from another
corporate tax entity will also generate a franking credit. There are other
circumstances in which a franking credit arises.
(3) The receipt of a refund of income tax or the payment of a franked
distribution by a corporate tax entity will generate a franking debit. There
are, however, other cases where a franking debit arises. For example, a franking
debit might arise under a determination by the Commissioner because
distributions have been streamed.
(4) An entity must be a franking entity at certain times and satisfy
certain residency requirements before a franking credit or debit arises in its
account.
(5) Franking deficit tax is payable if the franking account of an entity
is in deficit at the end of the entity’s income year, or when the entity
ceases to be a franking entity.
[This is the end of the Guide.]
There is a franking account for each entity that is, or has
at any time been, a *corporate tax
entity.
Note: The balance in the franking account on 1 July
2002 will either be nil or, if the entity had a franking surplus or deficit
immediately before 1 July 2002 under the imputation scheme existing at that
time, an amount calculated under the Income Tax (Transitional Provisions) Act
1997.
The following table sets out when a credit arises in the
*franking account of an entity and the amount
of the credit. The credit is called a franking credit.
|
Credits in the franking account |
|||
|---|---|---|---|
|
Item |
If: |
A credit of: |
Arises: |
|
1 |
the entity *pays a PAYG instalment;
and the entity satisfies the *residency
requirement for the income year in relation to which the PAYG instalment is
paid; and the entity is a *franking entity for the
whole or part of the relevant *PAYG instalment
period |
that part of the payment that is attributable to the period during which
the entity was a franking entity |
on the day on which the payment is made |
|
2 |
the entity *pays income tax; and the entity satisfies the *residency
requirement for the income year for which the tax is paid; and the entity is a *franking entity for the
whole or part of that income year |
that part of the payment that is attributable to the period during which
the entity was a franking entity |
on the day on which the payment is made |
|
3 |
a *franked distribution is made to the
entity; and the entity satisfies the *residency
requirement for the income year in which the distribution is made; and the entity is a *franking entity when it
receives the distribution; and the entity is entitled to a *tax offset
because of the distribution under Division 207 |
the *franking credit on the
distribution |
on the day on which the distribution is made |
|
4 |
a *franked distribution
*flows indirectly to the entity through a
*partnership or trust; and the entity is a *franking entity when the
franked distribution is made; and the entity is entitled to a *tax offset
because of the distribution under Division 207 |
the entity’s share of the *franking
credit on the distribution |
at the end of the income year of the last partnership or trust interposed
between the entity and the corporate tax entity that made the
distribution |
|
5 |
the entity incurs a liability to pay
*franking deficit tax under section 205-45
or 205-50 |
the amount of the liability |
immediately after the liability is incurred |
(1) An entity pays a PAYG instalment if and
only if:
(a) the entity has a liability to pay the instalment; and
(b) either:
(i) the entity makes a payment to satisfy the liability (in whole or in
part); or
(ii) a credit, or an *RBA surplus, is
applied to discharge or reduce the liability.
Note: The requirement in paragraph (a) means that the
entity cannot generate franking credits by making a “voluntary”
payment of income tax (that is, paying an amount on account of income tax for
which the entity is not liable at the time when the payment is
made).
(2) If an entity:
(a) is liable to pay a *PAYG instalment;
and
(b) has a *PAYG instalment variation
credit;
the PAYG instalment variation credit must be fully applied to reduce the
liability for the PAYG instalment before any other credit or payment can be
applied to reduce that liability.
(3) An entity pays income tax if and only if:
(a) the entity has a liability to pay the income tax; and
(b) either:
(i) the entity makes a payment to satisfy the liability (in whole or in
part); or
(ii) a credit, or an *RBA surplus, is
applied to discharge or reduce the liability.
Note: The requirement in paragraph (a) means that the
entity cannot generate franking credits by making a “voluntary”
payment of income tax (that is, paying an amount on account of income tax for
which the entity is not liable at the time when the payment is
made).
(4) Subparagraphs (1)(b)(ii) and (3)(b)(ii) do not apply to the
application of a credit allowable under or by virtue of:
(a) Division 18, 18A or 18B of Part III of the Income Tax
Assessment Act 1936 (these Divisions deal with credits in respect of foreign
tax, credits in respect of overseas tax paid on certain film income and credits
in respect of overseas tax paid on certain shipping income); or
(b) the International Tax Agreements Act 1953 (credit to relieve
double taxation); or
(c) section 45-30 or 45-215 in Schedule 1 to the Taxation
Administration Act 1953 (these sections deal with credits for
*PAYG instalments payable and credit on using a
varied rate in certain cases).
(5) The amount of the *PAYG instalment or
income tax paid is equal to:
(a) the amount of the liability, if it is satisfied in full; or
(b) the amount by which the liability is reduced, if it is not satisfied
in full.
(6) If:
(a) a surplus in an *RBA of an entity is
applied to satisfy a liability of the entity to
*pay a PAYG instalment in respect of an income
year; and
(b) a credit allowable under section 45-30 in Schedule 1 to the
Taxation Administration Act 1953 in respect of that income year is
included in the RBA; and
(c) the RBA does not include the liability to pay the
*PAYG instalment; and
(d) the amount of the credit exceeds the income tax assessed to the entity
in respect of that income year;
the amount of the PAYG instalment paid by virtue of the application of the
surplus is reduced by the amount of the excess mentioned in
paragraph (d).
An entity satisfies the residency requirement for an income
year in which, or in relation to which, an event specified in the table in
section 205-15 or 205-30 occurs if:
(a) where the entity is a
*company:
(i) the company is an *Australian
resident for more than one half of the year; or
(ii) the company is an Australian resident at all times during the year
when the company exists; or
(b) where the entity is a *corporate
limited partnership:
(i) the corporate limited partnership is an Australian resident for more
than one half of the year; or
(ii) the corporate limited partnership is an Australian resident at all
times during the year when the corporate limited partnership exists;
or
(c) the entity is a *corporate unit trust
for the income year; or
(d) the entity is a *public trading trust
for the income year.
The following table sets out when a debit arises in the
*franking account of an entity and the amount
of the debit. The debit is called a franking debit.
|
Debits in the franking account |
|||
|---|---|---|---|
|
Item |
If: |
A debit of: |
Arises: |
|
1 |
the entity *franks a
*distribution |
the amount of the *franking credit on the
distribution |
on the day on which the distribution is made |
|
2 |
the entity *receives a refund of income
tax; and the entity satisfies the *residency
requirement for the income year to which the refund relates; and the entity was a *franking entity during
the whole or part of the income year to which the refund relates |
that part of the refund that is attributable to the period during which the
entity was a franking entity |
on the day on which the refund is received |
|
3 |
a *franking debit arises for the entity
under paragraph 203-50(1)(b) (the entity
*franks a
*distribution in contravention of the
*benchmark rule) |
the franking debit worked out under paragraph 203-50(2)(b) |
on the day specified in subsection 203-50(4) |
|
4 |
the entity ceases to be a *franking
entity; and the entity’s *franking account is in
*surplus immediately before ceasing to be a
franking entity |
the amount of the *franking
surplus |
on the day on which the entity ceases to be a franking entity |
|
5 |
a *franking debit arises for the entity
under section 204-15 (linked distributions) |
the franking debit specified in subsection 204-15(3) |
on the day specified in subsection 204-15(4) |
|
6 |
a *franking debit arises under
section 204-25 (debit for substituting
*tax-exempt bonus shares for
*franked distributions) |
the amount of the debit specified in subsection 204-25(2) |
on the day specified in subsection 204-25(3) |
|
7 |
the Commissioner makes a determination under paragraph 204-30(3)(a) giving
rise to a *franking debit for the entity
(streaming distributions) |
the amount of the debit specified in the determination |
on the day specified in section 204-35 |
|
8 |
the entity is taken to have paid a dividend for the purposes of the
Income Tax Assessment Act 1936 in an income year under Division 7A
of Part III of that Act |
an amount equal to the debit that would have arisen if: |
on the last day of the income year |
|
9 |
an *on-market buy-back by a
*company of a
*membership interest in the company |
an amount equal to the debit that would have arisen if: |
on the day on which the interest is purchased |
Note: For completeness, the table refers to some franking
debits that arise under other sections of the Act. This does not mean that
separate franking debits arise both under the relevant section and this
table.
(1) An entity receives a refund of income tax if and only
if:
(a) either:
(i) the entity receives an amount as a refund; or
(ii) the Commissioner applies a credit, or an
*RBA surplus, against a liability or
liabilities of the entity; and
(b) the refund of the amount, or the application of the credit, represents
in whole or in part a return to the entity of an amount paid or applied to
satisfy the entity’s liability to pay income tax.
(2) The amount of the refund is so much of the amount refunded or applied
as represents the return referred to in paragraph (1)(b).
(1) An entity’s *franking account
is in surplus at a particular time if, at that time, the sum of
the *franking credits in the account exceeds
the sum of the *franking debits in the account.
The amount of the franking surplus is the amount of the
excess.
(2) An entity’s *franking account
is in deficit at a particular time if, at that time, the sum of
the *franking debits in the account exceeds the
sum of the *franking credits in the account.
The amount of the franking deficit is the amount of the
excess.
Object
(1) While recognising that an entity may anticipate
*franking credits when
*franking
*distributions, the object of this section is
to prevent those credits from being anticipated indefinitely by requiring the
entity to reconcile its *franking account at
certain times and levying tax if the account is in
*deficit.
Franking deficit at end of income year
(2) An entity is liable to pay franking deficit tax imposed by the New
Business Tax System (Franking Deficit Tax) Act 2002 if its
*franking account is in
*deficit at the end of an income
year.
Corporate tax entity ceases to be a franking entity
(3) An entity is liable to pay *franking
deficit tax imposed by the New Business Tax System (Franking Deficit Tax) Act
2002 if:
(a) it ceases to be a *franking entity;
and
(b) immediately before it ceases to be a franking entity, its
*franking account is in
*deficit.
Note: The tax is imposed in the New Business Tax System
(Franking Deficit Tax) Act 2002 and the amount of the tax is set out in that
Act.
Object
(1) The object of this section is to ensure that an entity does not avoid
*franking deficit tax by deferring the time at
which a *franking debit occurs in its
*franking account.
End of year deficit deferred
(2) A *refund of income tax for an income
year is taken to have been paid to an entity immediately before the end of that
year, for the purposes of subsection 205-45(2), if:
(a) the refund is paid within 3 months after the end of that year;
and
(b) the *franking account of the entity
would have been in *deficit, or in deficit to a
greater extent, at the end of that year if the refund had been received in that
year.
Deficit on ceasing to be a franking entity deferred
(3) If an entity ceases to be a *franking
entity during an income year, a *refund of
income tax is taken to have been paid to it immediately before it ceased to be a
franking entity, for the purposes of subsection 205-45(3), if:
(a) the refund is attributable to a period in the year during which the
entity was a franking entity; and
(b) the refund is paid within 3 months after the entity ceases to be a
franking entity; and
(c) the *franking account of the entity
would have been in *deficit, or in deficit to a
greater extent, immediately before it ceased to be a franking entity if the
refund had been received before it ceased to be a franking entity.
Table of Subdivisions
Guide to Division 207
207-A Effect of receiving a franked distribution generally
207-B Effect of receiving a franked distribution through certain
partnerships and trusts
207-C Residency requirements for the general rule
207-D Adjustments where the ultimate recipient of a distribution is not a
resident
207-E No gross-up or tax offset where distribution is not taxed in any
case
207-F No gross-up or tax offset where the imputation system has been
manipulated
Table of sections
207-5 Overview
(1) If a corporate tax entity makes a franked distribution to one of its
members, then, as a general rule:
(a) an amount equal to the franking credit on the distribution is included
in the member’s assessable income; and
(b) the member is entitled to a tax offset equal to the same
amount.
(2) In some cases a residency requirement must be satisfied for the
general rule to apply.
(3) If the distribution is made to certain partnerships or trusts, it will
be treated as flowing indirectly to the members of the partnership or trust.
Each member’s share of the franking credit on the distribution is included
in that member’s assessable income. However, it is only the ultimate
recipients of the distribution, who are themselves liable for tax on the amount
that flows indirectly to them, that are entitled to the tax offset.
(4) Adjustments are made to the assessable income of the ultimate
recipient of the distribution where that entity is not an Australian
resident.
(5) There are exceptions to both the general rule mentioned in
subsection (1), and the special rules mentioned in subsection (3).
Basically, these exceptions are created:
(a) where the relevant entity would not have paid tax on the distribution
in any case; and
(b) where there is a manipulation of the imputation system in a manner
that is not permitted under income tax law.
As a general rule, if a member of an entity receives a franked
distribution:
• an amount equal to the franking credit on the distribution is
included in the member’s assessable income; and
• the member is entitled to a tax offset equal to the franking credit
on the distribution.
Table of sections
Operative provisions
207-15 Applying the general rule
207-20 General rule—gross-up and tax
offset
[This is the end of the Guide.]
(1) This Subdivision sets out, as a general rule, the tax effect of
receiving a *franked distribution.
(2) Where a distribution *flows
indirectly to an entity, this Subdivision does not apply either to the entity to
which it flows indirectly or to the entity to whom it is made.
Subdivision 207-B applies in those cases.
Note: Subdivision 207-B deals with distributions to an
entity through certain interposed partnerships or trusts. A franked distribution
will not flow indirectly through some partnerships or trusts, for example, an
eligible entity within the meaning of Part IX of the Income Tax
Assessment Act 1936, or an exempt institution that is eligible for a
refund.
(3) This Subdivision applies subject to:
(a) Subdivision 207-C; and
(b) Subdivision 207-E; and
(c) Subdivision 207-F.
Note 1: Subdivision 207-C sets out the residency
requirements which must be satisfied by an individual or a corporate tax entity
that receives a franked distribution.
Note 2: Subdivision 207-E sets out cases in which the
general rule will not apply because the distribution is exempt income and so
would not be taxed in any case. It also replaces the general rule for exempt
institutions that are eligible for a refund and, in some cases, for eligible
entities within the meaning of Part IX of the Income Tax Assessment Act
1936 and for life insurance companies.
Note 3: Subdivision 207-F sets out cases in which the
general rule will not apply because the imputation system has been manipulated
in a way that is not permitted under income tax law, for example by streaming
distributions or dividend stripping.
(1) If an entity makes a *franked
distribution to another entity, the assessable income of the receiving entity,
for the income year in which the distribution is made, includes the amount of
the *franking credit on the distribution. This
is in addition to any other amount included in the receiving entity’s
assessable income in relation to the distribution under any other provision of
this Act.
(2) The receiving entity is entitled to a
*tax offset for the income year in which the
distribution is made. The tax offset is equal to the
*franking credit on the distribution.
A franked distribution to certain partnerships and trusts is treated as
flowing indirectly to members of the partnership or trust.
Each member’s share of the franking credit on the distribution is
included in that member’s assessable income.
Each member is then given a tax offset equal to that share of the franking
credit, provided the member is not itself a partnership or trust through which
the distribution flows indirectly.
Where the trustee, rather than a member, is the taxpayer on a share of the
distribution, it is the trustee in that capacity who is given the tax offset
under this Subdivision.
Table of sections
Operative provisions
207-30 Applying this Subdivision
207-35 When a franked distribution flows indirectly to an
entity
207-40 Effect on assessable income where distribution flows
indirectly
207-45 Adjustment of the amount included in the assessable
income of an entity because of a distribution that flows
indirectly
207-50 Tax offset where distribution flows
indirectly
207-55 An entity’s share of the franking credit on a
franked distribution
[This is the end of the Guide.]
This Subdivision applies subject to:
(a) Subdivision 207-E; and
(b) Subdivision 207-F.
Note 1: Subdivision 207-D also contains adjustments to
deal with cases where a distribution flows indirectly to an entity that is not a
resident.
Note 2: Subdivision 207-E sets out cases in which the
rules in this Subdivision will not apply because the distribution is exempt
income and so would not be taxed in any case. It also replaces the rules in this
Subdivision where the distribution flows indirectly to exempt institutions that
are eligible for a refund and, in some cases, to eligible entities within the
meaning of Part IX of the Income Tax Assessment Act 1936 and to life
insurance companies.
Note 3: Subdivision 207-F sets out cases in which the
rules in this Subdivision will not apply because the imputation system has been
manipulated in a way that is not permitted under income tax law, for example by
streaming distributions or dividend stripping.
(1) This section sets out the only circumstances in which a
*franked distribution is taken to flow
indirectly to an entity in an income year.
Partners
(2) The distribution flows indirectly to the entity in the
income year if:
(a) the entity is a partner in a
*partnership; and
(b) either:
(i) a share of the *net income of the
partnership is included in the entity’s assessable income for the income
year under subsection 92(1) of the Income Tax Assessment Act 1936;
or
(ii) a share of the *partnership loss of
the partnership is allowable as a deduction for the income year to the partner
under subsection 92(2) of that Act; and
(c) the whole or a part of that share of the net income or partnership
loss of the partnership is attributable to:
(i) an amount included in the assessable income of the partnership because
the distribution is made to the partnership; or
(ii) an amount included in the assessable income of the partnership
because of the distribution and in circumstances where the distribution flows
indirectly to the partnership because of one or more previous applications of
this section.
Beneficiaries of trusts
(3) The distribution flows indirectly to the entity in the
income year if:
(a) the entity is a beneficiary of a trust; and
(b) a share of the *net income of the
trust is included in the entity’s assessable income for the income year
under section 97, 98A or 100 of the Income Tax Assessment Act 1936;
and
(c) the whole or a part of that share of the net income of the trust is
attributable to:
(i) an amount included in the assessable income of the trust because the
distribution is made to the trustee of the trust; or
(ii) an amount included in the assessable income of the trust because of
the distribution and in circumstances where the distribution flows indirectly to
the trustee of the trust because of one or more previous applications of this
section; or
(iii) an amount allowed as a deduction from the assessable income of the
trust because of the distribution and in circumstances where the distribution
flows indirectly to the trustee of the trust because of one or more previous
applications of this section.
Trustees liable to be assessed under section 98, 99 or 99A of the
Income Tax Assessment Act 1936
(4) The distribution flows indirectly to the entity in an
income year if:
(a) the entity is a trustee of a trust; and
(b) the entity is:
(i) liable to be assessed under section 98 of the Income Tax
Assessment Act 1936 in respect of a share of the
*net income of the trust for the income year;
or
(ii) liable to be assessed under section 99 or 99A of the Income
Tax Assessment Act 1936 in respect of the net income, or a part of the net
income, of the trust for the income year; and
(c) the whole or a part of the amount on which the entity is liable to be
assessed under that section is attributable to:
(i) an amount included in the assessable income of the trust because the
distribution is made to the trustee of the trust; or
(ii) an amount included in the assessable income of the trust because of
the distribution and in circumstances where the distribution flows indirectly to
the trustee of the trust because of one or more previous applications of this
section; or
(iii) an amount allowed as a deduction from the assessable income of the
trust because of the distribution and in circumstances where the distribution
flows indirectly to the trustee of the trust because of one or more previous
applications of this section.
(1) Where:
(a) a *franked distribution is made to a
*partnership; and
(b) the distribution *flows indirectly to
a partner in the partnership;
then, for the purpose of working out the net income of the partnership
under subsection 90(1) of the Income Tax Assessment Act 1936, the
assessable income of the partnership, for the income year in which the
distribution is made, includes an amount equal to the
*franking credit on the distribution.
(2) Where:
(a) a *franked distribution is made to a
trustee of a trust; and
(b) the distribution *flows indirectly to
a beneficiary or the trustee of the trust;
then, for the purpose of working out the net income of the trust under
subsection 95(1) of the Income Tax Assessment Act 1936, the assessable
income of the trustee, for the income year in which the distribution is made,
includes an amount equal to the *franking
credit on the distribution.
Note 1: An amount included in the assessable income of a
partnership under this provision will also affect the assessable income of a
partner in the partnership. This is because of Division 5 of Part III
of the Income Tax Assessment Act 1936.
Note 2: An amount included in the assessable income of a
trustee under this provision will also affect the assessable income of a
beneficiary of the trust, or the amount on which the trustee of the trust is
assessed and liable to pay tax. This is because of Division 6 of
Part III of that Act.
(1) Where:
(a) an amount is included in the assessable income of an entity under
Division 5 or 6 of Part III of the Income Tax Assessment Act
1936; and
(b) the amount is attributable to the
*franking credit on a
*distribution that
*flows indirectly to the entity;
then, despite anything in those Divisions, the amount that is included in
the assessable income of the entity is equal to the entity’s
*share of the franking credit on the
distribution.
(2) Where:
(a) as trustee of a trust, an entity is liable to be assessed on an amount
under Division 6 of Part III of the Income Tax Assessment Act
1936; and
(b) the amount is attributable to the
*franking credit on a
*distribution that
*flows indirectly to the trustee;
then, despite anything in that Division, the amount on which the entity is
assessed and liable to pay tax is equal to the entity’s
*share of the franking credit on the
distribution.
(1) If:
(a) a *franked distribution
*flows indirectly to an entity; and
(b) the entity is one of the following:
(i) an individual;
(ii) a *corporate tax entity;
(iii) a trustee that is liable to be assessed on a share of the
*net income of the trust under section 98,
99 or 99A of the Income Tax Assessment Act 1936;
(iv) a trustee of an eligible entity within the meaning of Part IX of
the Income Tax Assessment Act 1936 (certain superannuation funds, ADFs
and PSTs are eligible entities);
the entity is entitled to a *tax offset
for the income year in which the distribution is made.
Note: These are the ultimate recipients of the distribution
and so the ultimate taxpayers. For this reason, they are given the benefit of
having income tax already paid on the profits underlying the distribution
acknowledged when they pay income tax.
(2) The amount of the *tax offset is
equal to the entity’s *share of the
*franking credit on the distribution.
Note: The entity’s share of the franking credit, and
so the entity’s tax offset, may be nil.
(1) Use the following table to work out an entity’s
share of the *franking credit on
a *franked distribution that
*flows indirectly to the entity if:
(a) the distribution is made to a
*partnership of which the entity is a partner;
or
(b) the distribution is made to the trustee of a trust of which the entity
is a beneficiary and a share of the *net income
of the trust is included in the entity’s assessable income under
section 97, 98A or 100 of the Income Tax Assessment Act 1936;
or
(c) the distribution is made to the entity as trustee of a trust and the
entity is liable to be assessed under section 98, 99 or 99A of the
Income Tax Assessment Act 1936 in respect of the net income, or part of
the net income, of the trust.
|
The entity’s share of franking credit (distribution made to a
partnership or trust of which the entity is a member) |
||
|---|---|---|
|
Item |
If: |
Use this formula: |
|
1 |
paragraph (1)(a) applies |
|
|
2 |
paragraph (1)(b) applies |
|
|
3 |
paragraph (1)(c) applies |
|
(2) Use the following table to work out an entity’s
share of the *franking credit on
a *franked distribution that
*flows indirectly to the entity if:
(a) the distribution *flows indirectly to
a *partnership of which the entity is a
*partner; or
(b) the distribution flows indirectly to the trustee of a trust of which
the entity is a beneficiary and a share of the
*net income of the trust is included in the
entity’s assessable income under section 97, 98A or 100 of the
Income Tax Assessment Act 1936; or
(c) the distribution flows indirectly to the entity as trustee of a trust
and the entity is liable to be assessed under section 98, 99 or 99A of the
Income Tax Assessment Act 1936 in respect of the net income, or part of
the net income, of the trust.
Before working out the entity’s share of the franking credit, first
work out the partnership’s or trust’s share of the franking credit,
by applying this section to each entity to which the distribution flows
indirectly on its way to the partnership or trust, starting with the entity
whose share is worked out under subsection (1) and following the flow of
the distribution from that entity to the partnership or trust.
|
The entity’s share of franking credit (distribution flows
indirectly to a partnership or trust of which the entity is a
member) |
||
|---|---|---|
|
Item |
If: |
Use this formula: |
|
1 |
paragraph (2)(a) applies |
|
|
2 |
paragraph (2)(b) applies |
|
|
3 |
paragraph (2)(c) applies |
|
Note: Where reference is made in the tables in
subsection (1) and (2) to an amount attributable to a distribution, it is a
reference to an amount attributable to the cash amount of the
distribution.
Some recipients of a franked distribution must satisfy a residency
requirement if their assessable income is to include the franking credit on the
distribution, and they are to be entitled to a tax offset, under the general
rule.
Table of sections
207-65 Satisfying the residency requirement
Operative provisions
207-70 Gross-up and tax offset under
section 207-20
207-75 Residency requirement
(1) This Subdivision sets out the residency requirements that must be
satisfied by an individual or a corporate tax entity that receives a franked
distribution, if the franking credit on the distribution is to be included in
that entity’s assessable income, or the entity is to be entitled to a tax
offset, under the general rule.
(2) It does not impose a residency requirement on other entities, because
the significance of residency for those entities is dealt with elsewhere in this
Act.
(3) It does not impose a residency requirement where a distribution flows
indirectly to an entity. This is also because the significance of residency is
dealt with elsewhere, for the most part in Divisions 5 and 6 of
Part III of the Income Tax Assessment Act 1936.
[This is the end of the Guide.]
If an entity makes a *franked
distribution to an individual or a *corporate
tax entity:
(a) no amount is included in the receiving entity’s assessable
income under subsection 207-20(1); and
(b) the receiving entity is not entitled to a
*tax offset under subsection
207-20(2);
unless the receiving entity satisfies the
*residency requirement at the time the
distribution is made.
An entity that receives a *franked
distribution satisfies the residency requirement at the time the
distribution is made if:
(a) in the case of an individual—the individual is an
*Australian resident at that time;
and
(b) in the case of a *company—the
company is an *Australian resident at that
time; and
(c) in the case of a *corporate limited
partnership—the corporate limited partnership is an Australian resident at
that time; and
(d) in the case of a *corporate unit
trust—the corporate unit trust is a
*resident unit trust for the income year in
which that time occurs; and
(e) in the case of a *public trading
trust—the public trading trust is a resident unit trust for the income
year in which that time occurs.
Adjustments are made where a franked distribution flows indirectly to a
non-resident to ensure that the recipient is not taxed
inappropriately.
Table of sections
207-85 Adjustments where an entity to which a distribution
flows indirectly is a non-resident
Operative provisions
207-90 Adjustment for non-resident
beneficiaries
207-95 Adjustment where trustee assessed for non-resident
beneficiary
207-100 Adjustment for non-resident
partners
(1) Where a franked distribution flows indirectly to an entity who is not
a resident, an amount of the distribution, worked out by applying the franking
percentage for the distribution to the amount of the distribution that flows
indirectly to the entity, is not included in the assessable income of the entity
because of section 128D of the Income Tax Assessment Act
1936.
(2) However, unless an adjustment were made, that entity’s share of
the franking credit on the distribution would be assessed.
(3) Adjustments are therefore made under this Subdivision to ensure that
this does not occur.
[This is the end of the Guide.]
Where:
(a) a *franked distribution
*flows indirectly to an individual or a
*corporate tax entity as beneficiary of a
trust; and
(b) the distribution does not flow indirectly to the entity as trustee of
a trust; and
(c) a share of the *net income of the
trust is included in the assessable income of the entity, for the income year in
which the distribution is made, under section 97, 98A or 100 of the
Income Tax Assessment Act 1936; and
(d) but for section 128D of that Act, that share would include income
to which section 128B of that Act would apply but for paragraph
128B(3)(ga);
a deduction is allowed from the assessable income of the entity for that
income year of an amount worked out under Subdivision 207-J.
Where:
(a) a *franked distribution
*flows indirectly to the trustee of a trust;
and
(b) the trustee is liable to be assessed on a share of the
*net income of the trust, for the income year
in which the distribution is made, under section 98 of the Income Tax
Assessment Act 1936; and
(c) but for section 128D of that Act, that share would include income
to which section 128B of that Act would apply but for paragraph
128B(3)(ga);
the share of the net income of the trust on which the trustee is liable to
be assessed is reduced by an amount worked out under
Subdivision 207-J.
Where:
(a) a *franked distribution
*flows indirectly to an individual or
*corporate tax entity as partner in a
*partnership; and
(b) the distribution does not flow indirectly to that entity as trustee of
a trust; and
(c) either:
(i) a share of the *net income of the
partnership is included in the entity’s assessable income, for the income
year in which the distribution is made, under subsection 92(1) of the Income
Tax Assessment Act 1936; or
(ii) a share of the *partnership loss of
the partnership is allowable as a deduction to the entity, for the income year
in which the distribution is made, under subsection 92(2) of that Act;
and
(d) but for section 128D of that Act, that share would include income
to which section 128B of that Act would apply but for paragraph
128B(3)(ga);
a deduction is allowed from the assessable income of the entity for that
income year of the amount worked out under Subdivision 207-J.
If an entity would not in any case pay income tax on a franked
distribution:
• no amount is included in the entity’s assessable income as a
result of the franking credit on the distribution; and
• the entity is not entitled to a tax offset as a result of the
distribution.
There are some exceptions to this principle.
Table of sections
Operative provisions
207-110 Effect of exempt income on gross up and tax
offset
207-115 When a franked distribution flows indirectly through
an entity
207-120 Gross-up and tax offset allowed because of the
character of the income
207-125 Gross-up and tax offset allowed because entity is an
exempt institution that is entitled to a refund
207-130 Which exempt institutions are eligible for a
refund?
207-135 Residency requirement
[This is the end of the Guide.]
Tax effect on the entity to whom the distribution is made—no
indirect flow through
(1) Where:
(a) a *franked distribution is made to an
entity (the receiving entity); and
(b) the distribution does not *flow
indirectly to another entity; and
(c) the distribution is *exempt income of
the receiving entity; and
(d) the distribution is not dealt with in section 207-120;
and
(e) the receiving entity is not an
*exempt institution that is eligible for a
refund;
then:
(f) the *franking credit on the
distribution is not included in the assessable income of the receiving entity
under subsection 207-20(1); and
(g) the receiving entity is not entitled to a
*tax offset under subsection 207-20(2) as a
result of the distribution.
Tax effect on the entity to whom the distribution is made—indirect
flow through
(2) Where:
(a) a *franked distribution is made to an
entity (the receiving entity); and
(b) the distribution *flows indirectly to
another entity; and
(c) the distribution is *exempt income of
the receiving entity; and
(d) the distribution is not dealt with in section 207-120;
and
(e) the receiving entity is not an
*exempt institution that is eligible for a
refund;
the assessable income of the receiving entity does not include the
*franking credit on the distribution under
section 207-40.
Tax effect on other entities through which the distribution flows
indirectly
(3) Where:
(a) a *franked distribution
*flows indirectly to an entity (the
flow-through entity); and
(b) the distribution *flows indirectly
through the flow-through entity to another entity; and
(c) the distribution is *exempt income of
the flow-through entity; and
(d) the distribution is not dealt with in section 207-120;
and
(e) the flow-through entity is not an
*exempt institution that is eligible for a
refund;
then:
(f) the flow-through entity is allowed:
(i) where the distribution flows indirectly to the flow-through entity as
a partner in a *partnership or a beneficiary of
a trust—a deduction from its assessable income; or
(ii) where the distribution flows indirectly to the flow-through entity
under subsection 207-35(4) as trustee of a trust—a reduction of its
assessable income;
of an amount worked out under Subdivision 207-J; and
(g) where an entity to whom the distribution flows indirectly through the
flow-through entity would, but for this subsection, be entitled to a
*tax offset under subsection 207-50(1) because
of the distribution—that entity is not entitled to the tax
offset.
Tax effect of ultimate recipient of indirect flow-through
(4) Where:
(a) a *franked distribution
*flows indirectly to an entity (the
ultimate recipient); and
(b) the distribution does not flow indirectly through the ultimate
recipient to another entity; and
(c) the distribution is *exempt income of
the ultimate recipient; and
(d) the distribution is not dealt with in section 207-120;
and
(e) the ultimate recipient is not an
*exempt institution that is eligible for a
refund;
then:
(f) the ultimate recipient is allowed:
(i) where the distribution flows indirectly to the ultimate recipient as a
partner in a *partnership or a beneficiary of a
trust—a deduction from its assessable income; or
(ii) where the distribution flows indirectly to the ultimate recipient
under subsection 207-35(4) as trustee of a trust—a reduction of its
assessable income;
of an amount worked out under Subdivision 207-J; and
(g) the ultimate recipient is not entitled to a
*tax offset under subsection 207-50(1) because
of the distribution.
(1) This section sets out the only circumstances in which a
*franked distribution is taken to flow
indirectly through an entity in an income year.
(2) A *franked distribution flows
indirectly through a *partnership
if:
(a) the distribution is made to the partnership and
*flows indirectly to a partner in the
partnership; or
(b) the distribution *flows indirectly to
the partnership and to a partner in the partnership.
(3) A *franked distribution flows
indirectly through a trustee of a trust if the distribution is made to
the trustee and *flows indirectly to:
(a) a beneficiary of the trust, under subsection 207-35(3); or
(b) the trustee, under subsection 207-35(4).
(4) A *franked distribution flows
indirectly through a trustee of a trust if:
(a) the distribution *flows indirectly to
the trustee because the trustee is either:
(i) a beneficiary of another trust; or
(ii) a partner in a partnership; and
(b) the distribution flows indirectly:
(i) to a beneficiary of the trust, under subsection 207-35(3);
or
(ii) to the trustee, under subsection 207-35(4).
(1) Where:
(a) an entity makes a *franked
distribution to another entity; and
(b) the distribution is *exempt income of
the recipient under:
(i) section 282B, 283 or 297B of the Income Tax Assessment Act
1936 (certain income derived by an eligible entity within the meaning of
Part IX of that Act); or
(ii) paragraph 320-35(1)(b) of this Act (segregated exempt assets) or
subparagraph 320-35(1)(f)(ii) of this Act (income bonds, funeral policies and
scholarship plans);
the recipient is entitled to a *tax offset
equal to the *franking credit on the
distribution.
(2) Where:
(a) a *franked distribution
*flows indirectly to an entity; and
(b) the distribution is *exempt income of
the entity under:
(i) section 282B, 283 or 297B of the Income Tax Assessment Act
1936 (certain income derived by an eligible entity within the meaning of
Part IX of that Act); or
(ii) paragraph 320-35(1)(b) of this Act (segregated exempt assets) or
subparagraph 320-35(1)(f)(ii) of this Act (income bonds, funeral policies and
scholarship plans);
the entity is entitled to a *tax offset
equal to its *share of the
*franking credit on the distribution.
(1) Where an entity makes a *franked
distribution to an *exempt institution that is
eligible for a refund, the institution is entitled to a
*tax offset equal to the
*franking credit on the distribution.
(2) Where:
(a) a *franked distribution
*flows indirectly to an
*exempt institution that is eligible for a
refund; and
(b) the distribution does not flow indirectly to the institution as a
partner in a partnership; and
(c) the distribution does not flow indirectly to the institution through
another exempt institution that is eligible for a refund;
the institution is entitled to a *tax
offset equal to the amount of the tax offset to which the institution would have
been entitled, using Subdivision 207-B, if the exempt status of the
institution were ignored.
(1) This section sets out the only circumstances in which an entity is an
exempt institution that is eligible for a refund.
Income tax exempt charitable institutions
(2) An entity is an exempt institution that is eligible for a refund
if it:
(a) is covered by item 1.1, 1.5, 1.5A or 1.5B of the table in
section 50-5; and
(b) is endorsed as exempt from income tax under Subdivision 50-B;
and
(c) satisfies the *residency
requirement.
Income tax exempt deductible gift recipients
(3) An entity is an exempt institution that is eligible for a refund
if it:
(a) is endorsed under paragraph 30-120(a); and
(b) satisfies the *residency
requirement.
Income tax exempt specified deductible gift recipients
(4) An entity is an exempt institution that is eligible for a refund
if:
(a) the entity’s name is specified in a table in a section in
Subdivision 30-B; and
(b) it has an ABN; and
(c) it satisfies the residency requirement.
Income tax exempt relief funds
(5) An entity is an exempt institution that is eligible for a
refund if:
(a) a declaration by the Treasurer is in force in relation to the
institution under subsection 30-85(2); and
(b) the regulations do not provide that the entity is not an exempt
institution that is eligible for a refund.
Prescribed income tax exempt entities
(6) An entity is an exempt institution that is eligible for a refund
if the entity is prescribed as an exempt institution that is eligible
for a refund by the regulations.
An entity satisfies the residency requirement for the
purposes of determining whether, at the time a
*franked distribution is made, the entity is an
*exempt institution that is eligible for a
refund if:
(a) the entity has a physical presence in Australia; and
(b) to that extent, incurs its expenditure and pursues its objectives
principally in Australia;
at all times during the income year in which the distribution is
made.
Where an entity has manipulated the imputation system in a manner that is
not permitted under the income tax law:
• no additional amount is included in the entity’s assessable
income as a result of the relevant franked distribution; and
• any tax offset to which the entity would otherwise be entitled as a
result of the distribution is denied.
Table of sections
Operative provisions
207-145 Gross-up and tax offset under section 207-20 is
denied where there is manipulation of the imputation system
207-150 Gross-up and tax offset under section 207-50 is
denied where there is manipulation of the imputation system
207-155 When is a distribution made as part of a dividend
stripping operation?
207-160 Interest payments—distributions that flow
indirectly to a beneficiary of a trust
207-165 Interest payments—distributions that flow
indirectly to the trustee of a trust
207-170 Interest payments—distributions that flow
indirectly to a partner in a partnership
[This is the end of the Guide.]
(1) Where an entity makes a *franked
distribution to another entity in one or more of the following
circumstances:
(a) the receiving entity is not a qualified person in relation to the
distribution for the purposes of Division 1A of Part IIIAA of the
Income Tax Assessment Act 1936;
(b) the Commissioner has made a determination under paragraph 204-30(3)(b)
that no *imputation benefit is to arise for the
receiving entity in respect of the distribution;
(c) the distribution is made as part of a
*dividend stripping operation;
(d) the Commissioner has made a determination under paragraph 177EA(5)(b)
of the Income Tax Assessment Act 1936 that no franking credit benefit
(within the meaning of that section) is to arise in respect of the distribution
to the entity;
then:
(e) the *franking credit on the
distribution is not included in the assessable income of the entity under
subsection 207-20(1); and
(f) the receiving entity is not entitled to a
*tax offset under subsection 207-20(2) as a
result of the distribution.
(2) If the Commissioner makes a determination under paragraph 177EA(5)(b)
of the Income Tax Assessment Act 1936 that no franking credit benefit
(within the meaning of that section) is to arise in respect of a specified part
of a *franked distribution to an entity, the
amount included in the assessable income of the entity under subsection
207-20(1), and the *tax offset to which the
entity is entitled under subsection 207-20(2), is worked out using the
formula:
(1) Where a *franked distribution
*flows indirectly to an entity in one or more
of the following circumstances:
(a) the entity is not a qualified person in relation to the distribution
for the purposes of Division 1A of Part IIIAA of the Income Tax
Assessment Act 1936;
(b) the Commissioner has made a determination under paragraph 204-30(3)(b)
that no *imputation benefit is to arise for the
entity in respect of the distribution;
(c) the distribution is made as part of a
*dividend stripping operation;
(d) the Commissioner has made a determination under paragraph 177EA(5)(b)
of the Income Tax Assessment Act 1936 that no franking credit benefit
(within the meaning of that section) is to arise in respect of the distribution
in the hands of the entity, or an entity through which the distribution flows
indirectly to that entity;
(e) the distribution is treated as an interest payment under
section 207-160, 207-165 or 207-170;
then:
(f) the entity is allowed:
(i) where the distribution flows indirectly to the entity as a partner in
a *partnership or a beneficiary of a
trust—a deduction from its assessable income; or
(ii) where the distribution flows indirectly to the entity under
subsection 207-35(4) as trustee of a trust—a reduction of its assessable
income;
of an amount worked out under Subdivision 207-J;
(g) the entity is not entitled to a *tax
offset under subsection 207-50(1) as a result of the distribution.
(2) If the Commissioner makes a determination under paragraph 177EA(5)(b)
of the Income Tax Assessment Act 1936 that no franking credit benefit
(within the meaning of that section) is to arise in respect of a specified part
of a *franked distribution in the hands of an
entity the following apply:
(a) the entity is allowed:
(i) where the distribution flows indirectly to the entity as a partner in
a *partnership or a beneficiary of a
trust—a deduction from its assessable income; or
(ii) where the distribution flows indirectly to the entity under
subsection 207-35(4) as trustee of a trust—a reduction of its assessable
income;
of an amount worked out under Subdivision 207-J;
(b) any *tax offset to which the entity
is entitled under subsection 207-50(1), is not of the amount mentioned in
subsection 207-50(2), but of an amount worked out using the
formula:
A distribution made to a *member of a
*corporate tax entity is taken to be made as
part of a dividend stripping operation if, and only if, the making
of the distribution arose out of, or was made in the course of, a scheme
that:
(a) was by way of, or in the nature of, dividend stripping; or
(b) had substantially the effect of a scheme by way of, or in the nature
of, dividend stripping.
(1) For the purposes of this Subdivision, a
*franked distribution is treated as an
interest payment if:
(a) it *flows indirectly to an entity as
beneficiary of a trust; and
(b) the entity’s interest in the trust:
(i) was acquired, or was acquired for a period that was extended, at or
after the commencing time; or
(ii) was acquired as part of a *financing
arrangement for the entity (including an arrangement extending to an earlier
arrangement) entered into at or after the commencing time; and
(c) having regard to the matters in subsection (2), the distribution
could reasonably be regarded as equivalent to the payment of interest on a
loan.
(2) A *distribution that
*flows indirectly to a beneficiary of a trust
can reasonably be regarded as equivalent to the payment of interest on a loan
if:
(a) an amount is included in the assessable income of the entity, for the
income year in which the distribution is made, that is attributable to the
distribution; and
(b) having regard to the following matters, the amount could reasonably be
regarded as equivalent to the payment of interest on a loan:
(i) the way in which the amount was calculated;
(ii) the conditions applying to the inclusion of the amount;
(iii) any other relevant matters.
(3) The commencing time, for the purposes of
subsection (1), is 7.30 pm by legal time in the Australian Capital
Territory on 13 May 1997.
(1) For the purposes of this Subdivision, a
*franked distribution is treated as an
interest payment if:
(a) it *flows indirectly to an entity
under subsection 207-35(4) as trustee of a trust; and
(b) the interest in the trust in respect of which the trustee is liable to
be assessed:
(i) was acquired, or was acquired for a period that was extended, at or
after the commencing time; or
(ii) was acquired as part of a *financing
arrangement for the entity (including an arrangement extending to an earlier
arrangement) entered into at or after the commencing time; and
(c) having regard to the matters in subsection (2), the distribution
could reasonably be regarded as equivalent to the payment of interest on a
loan.
(2) A *distribution that
*flows indirectly to the trustee of a trust can
reasonably be regarded as equivalent to the payment of interest on a loan
if:
(a) the trustee is liable to be assessed under Division 6 of
Part III of the Income Tax Assessment Act 1936, for the income year
in which the distribution is made, on an amount that is attributable to the
distribution; and
(b) having regard to the following matters, the amount could reasonably be
regarded as equivalent to the payment of interest on a loan:
(i) the way in which the amount was calculated;
(ii) the conditions applying to the inclusion of the amount;
(iii) any other relevant matters.
(3) The commencing time, for the purposes of
subsection (1), is 7.30 pm by legal time in the Australian Capital
Territory on 13 May 1997.
(1) For the purposes of this Subdivision, a
*franked distribution is treated as an
interest payment if:
(a) it *flows indirectly to an entity as
partner in a *partnership; and
(b) the entity’s interest in the partnership:
(i) was acquired, or was acquired for a period that was extended, at or
after the commencing time; or
(ii) was acquired as part of a *financing
arrangement for the entity (including an arrangement extending to an earlier
arrangement) entered into at or after the commencing time; and
(c) having regard to the matters in subsection (2), the distribution
could reasonably be regarded as equivalent to the payment of interest on a
loan.
(2) A *distribution that
*flows indirectly to a partner in a
*partnership can reasonably be regarded as
equivalent to the payment of interest on a loan if:
(a) either:
(i) a share of the *net income of the
partnership is included in the partner’s assessable income, for the income
year in which the distribution is made, under subsection 92(1) of the Income
Tax Assessment Act 1936; or
(ii) a share of the *partnership loss of
the partnership is allowable as a deduction to the entity, for the income year
in which the distribution is made, under subsection 92(2) of that Act;
and
(b) the whole or a part of that share is attributable to the distribution;
and
(c) having regard to the following matters, that amount could reasonably
be regarded as equivalent to the payment of interest on a loan:
(i) the way in which the amount was calculated;
(ii) the conditions applying to the inclusion of the amount;
(iii) any other relevant matters.
(3) The commencing time, for the purposes of
subsection (1), is 7.30 pm by legal time in the Australian Capital
Territory on 13 May 1997.
(1) The *imputation system applies to a
*non-share equity interest in the same way as
it applies to a *membership interest.
(2) The *imputation system applies to an
equity holder in an entity who is not a member of the entity in the same way as
it applies to a member of the entity.
1 Subsection 995-1(1)
Insert:
benchmark franking percentage has the meaning given by
section 203-30.
2 Subsection 995-1(1)
Insert:
benchmark rule is the rule in section 203-25.
3 Subsection 995-1(1)
Insert:
class: *membership interests
in a company form a class if the interests have the same, or
substantially the same, rights.
4 Subsection 995-1(1)
Insert:
corporate tax rate means the rate of tax in respect of the
taxable income of a company covered by subsection 23(2) of the Income Tax
Rates Act 1986.
5 Subsection 995-1(1)
Insert:
deficit: section 205-40 sets out when a
*franking account is in deficit.
6 Subsection 995-1(1)
Insert:
distribution statement has the meaning given by
section 202-80.
7 Subsection 995-1(1)
Insert:
dividend stripping operation has the meaning given by
section 207-155.
8 Subsection 995-1(1)
Insert:
exempt institution that is eligible for a refund has the
meaning given in section 207-130.
9 Subsection 995-1(1)
Insert:
exempting company has the same meaning as in Part IIIAA
of the Income Tax Assessment Act 1936, as in force on 30 June
2002.
10 Subsection 995-1(1)
Insert:
flows indirectly:
(a) section 207-35 sets out the circumstances in which a
*franked distribution flows indirectly to an
entity; and
(b) section 207-115 sets out the circumstances in which a franked
distribution flows indirectly through an entity.
11 Subsection 995-1(1)
Insert:
frankable distribution has the meaning given by
section 202-40.
12 Subsection 995-1(1)
Insert:
franked distribution: a
*distribution is franked if an entity
*franks it in accordance with
section 202-5.
13 Subsection 995-1(1)
Insert:
franking account means an account that arises under
section 205-10.
Note 1: Section 205-15 sets out when a credit arises in
that account.
Note 2: Section 205-30 sets out when a debit arises in
that account.
14 Subsection 995-1(1)
Insert:
franking credit has the meaning given by
section 205-15.
15 Subsection 995-1(1)
Insert:
franking debit has the meaning given by
section 205-30.
16 Subsection 995-1(1)
Insert:
franking deficit has the meaning given by subsection
205-40(2).
17 Subsection 995-1(1)
Insert:
franking deficit tax means tax imposed under the New
Business Tax System (Franking Deficit Tax) Act 2002.
Note: That Act imposes tax where it is payable under
section 205-45 of this Act.
18 Subsection 995-1(1)
Insert:
franking entity has the meaning given by
section 202-15.
19 Subsection 995-1(1)
Insert:
franking percentage has the meaning given by
section 203-35.
20 Subsection 995-1(1)
Insert:
franking period has the meaning given by sections 203-40
and 203-45.
21 Subsection 995-1(1)
Insert:
franking surplus has the meaning given by subsection
205-40(1).
22 Subsection 995-1(1)
Insert:
greater benefit from franking credits has a
meaning affected by subsections 204-30(7) and (8).
23 Subsection 995-1(1)
Insert:
imputation benefit has the meaning given by subsection
204-30(6).
24 Subsection 995-1(1)
Insert:
imputation system means the rules in Part 3-6.
25 Subsection 995-1(1)
Insert:
maximum franking credit for a distribution has the meaning
given by subsection 202-60(2).
26 Subsection 995-1(1)
Insert:
net income:
(a) of a partnership—has the same meaning as in Division 5 of
Part III of the Income Tax Assessment Act 1936; and
(b) of a trust—has the same meaning as in Division 6 of
Part III of that Act.
27 Subsection 995-1(1)
Insert:
non-equity share has the meaning given by subsection 6(1) of
the Income Tax Assessment Act 1936.
28 Subsection 995-1(1)
Insert:
off-market buy-back means a purchase that is a buy-back and
an off-market purchase for the purposes of Division 16K of Part III of
the Income Tax Assessment Act 1936.
29 Subsection 995-1(1)
Insert:
off-market purchase has the meaning given by
section 159GZZZJ of the Income Tax Assessment Act 1936.
30 Subsection 995-1(1)
Insert:
on-market buy-back means a purchase that is a buy-back and an
on-market purchase for the purposes of Division 16K of Part III of the
Income Tax Assessment Act 1936.
31 Subsection 995-1(1)
Insert:
over-franking tax means tax imposed under the New Business
Tax System (Over-franking Tax) Act 2002.
Note: The Act imposes tax where it is payable under
section 203-50 of this Act.
32 Subsection 995-1(1)
Insert:
partnership loss has the same meaning as in Division 5
of Part III of the Income Tax Assessment Act 1936.
33 Subsection 995-1(1)
Insert:
PAYG instalment period means:
(a) for a *quarterly payer—an
*instalment quarter in relation to which a
*PAYG instalment is paid; and
(b) for an *annual payer—an income
year in relation to which a PAYG instalment is paid.
34 Subsection 995-1(1)
Insert:
PAYG instalment variation credit means a credit under
section 45-215 or 45-420 in Schedule 1 to the Taxation
Administration Act 1953.
35 Subsection 995-1(1)
Insert:
pays a PAYG instalment has the meaning given by subsection
205-20(1).
36 Subsection 995-1(1)
Insert:
pays income tax has the meaning given by subsection
205-20(3).
37 Subsection 995-1(1)
Insert:
qualified person: a person is a qualified person in relation
to a distribution if the person would have been a qualified person in relation
to the distribution under Division 1A of Part IIIAA of the Income
Tax Assessment Act 1936, as in force on 30 June 2002.
38 Subsection 995-1(1)
Insert:
RBA has the same meaning as in Part IIB of the
Taxation Administration Act 1953.
39 Subsection 995-1(1)
Insert:
RBA surplus has the same meaning as in Part IIB of the
Taxation Administration Act 1953.
40 Subsection 995-1(1)
Insert:
refund of income tax has the meaning given by
section 205-35.
41 Subsection 995-1(1)
Insert:
residency requirement:
(a) for an entity making a distribution—has the meaning given by
section 202-20:
(b) for an income year in which, or in relation to which, an event
specified in the table in section 205-15 (table of franking credits) or
section 205-30 (table of franking debits) occurs—has the meaning
given by section 205-25;
(c) for an entity that receives a
*franked distribution—has the meaning
given by section 207-75;
(d) for the purposes of determining whether an entity is an exempt
institution that is eligible for a refund at the time a
*franked distribution is made—has the
meaning given by section 207-135.
42 Subsection 995-1(1)
Insert:
resident unit trust:
(a) for a *corporate unit trust—has
the meaning given by section 102H of the Income Tax Assessment Act
1936; and
(b) for a *public trading trust—has
the meaning given by section 102Q of the Income Tax Assessment Act
1936.
43 Subsection 995-1(1)
Insert:
share of a *franking credit
has the meaning given by section 207-55.
44 Subsection 995-1(1)
Insert:
tax-exempt bonus share has the meaning given by subsections
204-25(4) and (5).
45 Subsection 995-1(1)
Insert:
unfrankable has the meaning given by
section 202-45.
Income Tax Assessment Act
1936
1 Before Division 1AAA of
Part IIIAA
Insert:
160AOAA Part ceases to apply after 1 July
2002
Subject to the rules on the application of this Part set out in the
Income Tax (Transitional Provisions) Act 1997, this Part does not apply
to events that occur on or after 1 July 2002.
Income Tax (Transitional
Provisions) Act 1997
2 After Part 3-5
Insert:
Part IIIAA of the Income Tax Assessment Act 1936 does not
apply to any of the following acts if it is done on or after 1 July
2002:
(a) lodging an application with the Commissioner for a determination of an
estimated debit;
(b) lodging an application with the Commissioner for a determination of an
estimated debit in substitution for an earlier determination;
(c) a determination by the Commissioner of an estimated debit (including a
determination in substitution for an earlier determination);
(d) the service of notice of any such determination on a
company;
(e) the deemed determination of an estimated debit in accordance with an
application (including an application for a determination in substitution for an
earlier determination);
(f) the deemed service of notice of a determination on a company
(including service of notice of a determination in substitution for an earlier
determination).
Income Tax Assessment Act
1936
1 Subsection 160ATD(1)
After “franking accounts”, insert “immediately after the
event occurred”.
Income Tax (Transitional
Provisions) Act 1997
2 After Division 201
Insert:
If a company has a franking account under Part IIIAA of the
Income Tax Assessment Act 1936 (the old account) at the end
of 30 June 2002, the old account is closed off and an opening balance is
created in the company’s franking account under section 205-10 (the
new account) as follows:
(a) any estimated debits in the old account at the end of 30 June
2002 are washed out of the account under section 205-5; and
(b) if there is a franking surplus in the account at the end of
30 June 2002, it gives rise to a franking credit in the new account under
section 205-10.
If, under Part IIIAA of the Income Tax Assessment Act 1936,
the termination time in relation to an estimated debit of a company would, but
for this section, occur after the end of 30 June 2002, it is taken to have
occurred at the end of 30 June 2002.
Note: A franking credit of the appropriate class equal to
the debit will arise under section 160APU of that Act at the beginning of
30 June 2002.
(1) This section applies to companies that have a franking year that ends
at the end of 30 June 2002 under Part IIIAA of the Income Tax
Assessment Act 1936 (the 1936 Act).
(2) If the company has a franking surplus under Part IIIAA of the
1936 Act at the end of 30 June 2002:
(a) no franking credit arises under section 160APL of that Act
because of the surplus; and
(b) a franking credit arises on 1 July 2002 in the franking account
established under section 205-10 of the Income Tax Assessment Act
1997 (the 1997 Act) for the company.
The amount of the franking credit is worked out under
subsection (3).
(3) The franking credit generated under paragraph (2)(b) from a
franking surplus of a class specified in column 2 of the following table is
worked out using the formula in column 3 of the table for that class.
|
Conversion of 1936 Act franking surplus into 1997 Act franking
credit |
||
|---|---|---|
|
Item |
Franking surplus |
Franking credit generated under paragraph (2)(b) |
|
1 |
class A franking surplus |
|
|
2 |
class B franking surplus |
|
|
3 |
class C franking surplus |
|
