What is a franking account?

A franking account is used to keep track of the amount of tax paid which a franking entity can pass on (or impute) to its members as a franking credit attached to a distribution. Each entity that is, or has ever been, a corporate tax entity, has a franking account.

The franking account records franking credits and franking debits. In general terms, a credit occurs when tax is paid, and a debit occurs when a distribution is franked.

Typically, a corporate tax entity receives a credit in the account if the entity pays income tax or receives a franked distribution. A credit in the franking account is called a franking credit - formally known as imputation credit. The amount of credit is equal to the amount of tax paid or the amount of franking credit received from a distribution.

A franking account is a tracking account only, it is not part of the entity's double entry financial system.

The new rules generally replicate the former rules relating to franking credits and debits and the times at which they arise.

The significant departures from the former law include:

  • the franking account entries being recorded on a tax paid basis, and
  • the franking account will operate as a rolling balance account.
    Last modified: 09 Jul 2014QC 17505