Refunding imputation credits - Trustees

From 1 July 2000, trustees may be entitled to a refund of excess imputation credits.

The refund applies where:

• a trustee of a resident trust estate is liable to be assessed under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936) on undistributed trust income; and
• the undistributed trust income includes franked dividends paid on or after 1 July 2000; and
• the total imputation credits attached to the dividends plus any other tax offsets exceed that trustee's basic income tax liability for the income year.

The amount refunded reflects the excess of any imputation credits, after applying the imputation credits and any other tax offsets to which the trustee is entitled to reduce the basic income tax liability of the trustee to nil.

Trustees liable to be assessed under section 98 or section 99A of the ITAA 1936, while eligible for a tax offset in relation to an imputation credits, are not eligible for a refund of excess imputation credits.

Previously, imputation credits could only be used to offset a trustee's basic income tax liability. Any excess imputation credits were disregarded and could not be refunded.

When is a trustee eligible for the refund?

Subject to the anti-avoidance rules, trustees of resident trust estates are eligible for a refund of excess imputation credits if:

• they are liable to be assessed under section 99 (but not section 98¹ or section 99A) of the ITAA 1936; and
• the part of the net income of the trust upon which they are liable to be assessed includes franked dividends paid to the trust on or after 1 July 2000; and
• their basic tax liability for the income year is less than their imputation credits after taking into account any other tax offsets to which they are entitled.