Converting a class B franking surplus

The class A, class B and class C were needed under the former imputation system to accommodate changes in the company tax rate. The current rules eliminate the need for these different classes of franking account by recording amounts on a tax paid basis.

With the introduction of each new company tax rate the balance in the old class of franking account was supposed to be converted into a new class. However, not all entities may have converted the surplus in each class of their franking accounts. Therefore, the simplified imputation rules provide for the conversion of class A and class B franking surplus.

The conversion involves multiplying the surplus from the class B franking account by 33/67 to arrive at the equivalent tax paid amount.Amount of the class B franking surplus at the end of 30 June 2002 under the 1936 Act times (33 divided by 67)

Example: Conversion of class B franking surplus to tax paid basis

Queens Carpets Pty Ltd has a surplus of $6,700 in the class B franking account on 30 June 2002. They have not yet converted to a class C franking account. Queens Carpets Pty Ltd will need to convert this amount to a tax paid amount on 1 July 2002.

The tax paid amount will be $3,300 ($6,700 x 33/67). ($3,000 being available franking credits).

End of example
    Last modified: 09 Jul 2014QC 17505