Franked distributions received through certain partnerships and trusts (Division 207 amendments)

On 25 June 2004 the Tax Laws Amendment (2004 Measure No.2) Bill received Royal Assent. The Bill contains, amongst other things, amendments to Division 207 of the Income Tax Assessment Act 1997 (ITAA 1997) which deals with the tax effect of receiving a franked distribution

The amendments to Division 207 of the ITAA 1997 will include adjustment rules to provide the calculation to adjust an entity's assessable income where a franked distribution flows indirectly to the entity through a trust or partnership and the entity has no entitlement to a tax offset.

The amendments will also:

• rectify a technical defect in the definition of 'flow indirectly' so that a franked distribution can flow indirectly to an entity where the distribution, or part of the distribution, is exempt income or non-assessable non-exempt income in the hands of the recipient
• replace the concept of a share (or interest) in the net income of a trustee of a trust or a partnership (or partnership loss) that is attributable to a franked distribution with the concept of 'an entity's share of a franked distribution'
• make consequential amendments to other parts of Division 207 and other parts of the simplified imputation system (SIS)
• update 207 so that it takes into account legislation that has been enacted since Division 207 came into operation, and
• improve readability of the provisions.

Key points

• Although the changes to Division 207 generally apply from 1 July 2002, taxpayers will not be adversely affected. These changes clarify the operation of Division 207 but they do not change the way the law is currently applied.
• The anti-avoidance provisions contained in Division 7AA of Part III AA of the ITAA 1936 (which are to be rewritten for inclusion in Division 207) will now be included in a later Bill.

Legislation

You can download Tax Laws Amendment (2004 Measures No. 2) Act 2004 and Explanatory Memorandum from www.aph.gov.au.

Other publications

For more information on the simplified imputation system refer to the fact sheets published in the simplified imputation section.