• How to calculate the amount of FDT offset

    Subject to the special rules for private companies without any previous tax liabilities and late balancing entities, the amount of the FDT offset for an income year is calculated as follows:

    Step 1

    Work out the amount of FDT liability that the entity has incurred in the income year.

    Step 2

    Did any franking debits arise in your franking account under items 1, 3, 5 or 6 of section 205-30 Income Tax Assessment Act 1997?

    If yes, go to step 3.

    If no, the FDT offset reduction does not apply. As a result the amount of FDT liability from step 1 is the amount that can be claimed as a tax offset. This amount should be shown at label C-Offsetable portion of current year FDT on the franking account return. Go to step 5.

    Step 3

    Work out the amount of FDT liability attributable to items 1, 3, 5 and 6, plus any item 2 franking debits.

    To do this, add the opening balance (if any) of the franking account and any franking credits that arose in the account for the year. Subtract from this amount the total of items 1, 2, 3, 5 and 6 debits.

    If the result is zero or positive, the FDT offset reduction rule does not apply and the amount of FDT liability from step 1 can be claimed as a tax offset. This amount should be shown at label C-Offsetable portion of current year FDT on the franking account return. Go to step 5.

    If the result is negative, this is the amount of franking deficit tax attributable to items 1, 2, 3, 5 and 6. Go to step 4.

    Step 4

    If the step 3 amount for the year is negative and is less than or equal to 10% of the total franking credits that arose in the franking account in the same year, the FDT offset reduction rule does not apply and the amount of FDT liability from step 1 can be claimed as a tax offset. This amount should be shown at label C-Offsetable portion of current year FDT on the franking account return. Go to step 5.

    If the step 3 amount for the year is negative and is greater than 10% of the total franking credits that arose in the franking account in the same year, the FDT offset reduction rule applies as follows.

    Work out 30% of the step 3 amount. This is the reduction amount. Reduce the amount of FDT liability from step 1 by the reduction amount. The result is the amount that can be claimed as a tax offset. This amount should be shown at label C-Offsetable portion of current year FDT on the franking account return. Go to step 5.

    Step 5

    For each previous income year in which the entity did not meet the residency requirement, repeat steps 1-4 to work out the amount of a previous year's FDT liability that can be claimed as an offset and that has not previously been claimed as an offset.

    Add up the amounts covered by step 5 for all previous income years in which the entity did not meet the residency requirements.

    Step 6

    Work out the amount of any excess FDT offset from a previous year (that has exceeded the tax liability for a previous year after applying all other tax offsets).

    Step 7

    Add up any label C-Offsetable portion of current year FDT amounts from steps 2, 3 or 4, plus any offsetable portions of previous year FDT amounts from step 5 and 6. This is the total amount of current year and previous year FDT offset the entity may claim for the income year in the calculation statement label E on the company tax return.

    Any FDT offset that is in excess of the income tax liability for the income year will be taken into account when calculating the FDT offset in the following year.

      Last modified: 02 Dec 2016QC 25289