Conversion to the rolling balance account
The change in the basis of maintaining the franking account means that any credit balance held in franking accounts at the end of 30 June 2002 must be converted to the tax paid basis.
Generally, any surplus in a class C franking account existing on 30 June 2002 is converted using a factor of 30/70, where 30 is the company tax rate, and 70 is the result of 100% minus the company tax rate).
A deficit in the class C account requires the payment of franking deficit tax to remove the deficit, and return the class C balance to nil.
The new franking account is never closed off. Instead, it is a rolling balance account, which means that the balance of the franking account rolls from one year to another.
If the franking account is in deficit at the end of an income year, the entity will be liable for franking deficit tax and, once this amount is paid, a credit will arise in the franking account to the amount of the deficit immediately after the end of the income year which is at the beginning of the next income year. If the franking account is in a surplus at the end of the income year, the surplus balance carries forward to the beginning of the next income year.
The franking account is in surplus at a particular time when the sum of the franking credits in the account exceeds the sum of the franking debits in the account.
The amount of the franking surplus is the amount of the excess.
The franking account is in deficit at a particular time when the sum of the franking debits in the account exceeds the sum of the franking credit in the account.
The transitional provisions provide rules for standard balancers to:
- convert a franking surplus from a class C franking account
- convert a franking surplus from a class B franking account, and
- convert a franking surplus from a class A franking account.
There are also provisions related to:
- early balancers, and
- late balancers.