The full amount of FDT liability can be claimed as a tax offset except where the FDT offset reduction rule applies. The FDT offset reduction rule applies where the FDT liability attributable to certain debits that arose in the franking account for a year is greater than 10% of the total franking credits that arose in the franking account for that year. This rule applies to 2002-03 and later income years.
There is an exception to the FDT offset reduction rule for private companies with no previous income tax liability where certain conditions are met. The Commissioner also has discretion to allow the full FDT liability as an offset where the FDT liability arose due to circumstances which were unanticipated or outside the entity's control.