• Simplified imputation: Franking deficit tax liability and franking deficit tax offset - consolidation specific matters

    This fact sheet explains the rules allowing franking deficit tax (FDT) to be offset against a liability for income tax in certain specific circumstances.

    Key points

    If a consolidated tax entity's franking account is in deficit at the end of an income year, the entity will be liable for franking deficit tax (FDT). This situation may arise for consolidated tax entities that receive refunds of tax paid in earlier income periods due to retrospective changes made to existing law by the Tax Laws Amendment (2010 Measures No. 1) Act 2010.

    An FDT liability will give rise to a tax offset which can be used to reduce any current and future year income tax liabilities.

    The tax offset is not refundable, but any excess will be taken into account in calculating the amount of the tax offset in future income years.

    If the FDT liability attributable to certain franking debits is greater than 10% of the total franking credits that arose in the franking account, the amount that can be claimed as an FDT offset is reduced. This is called the FDT offset reduction.

    The Commissioner can use his discretion to allow an entity to offset the full amount of its FDT liability where the deficit arose due to circumstances outside the entity's control. In the absence of any manipulation of the imputation system, the Commissioner would generally consider the impact of the retrospective amendments giving rise to later refunds of income tax to be a circumstance outside the entity's control.

      Last modified: 19 Jan 2017QC 25289