Franking credits and debits
A corporate tax entity receives a credit in the account if the entity pays income tax or receives a franked distribution.
A corporate tax entity receives a debit in the account if the entity receives a refund of income tax or pays a franked distribution to its members.
A credit in the franking account is called a franking credit (previously known as imputation credit). The amount of the credit is equal to the amount of tax paid. A franking credit arises when a corporate tax entity:
- makes a payment of a PAYG instalment or income tax where there is a liability to pay the amount
- receives a franked distribution, or
- incurs a liability for franking deficit tax.
A debit in the franking account is called a franking debit. A franking debit will arise when a corporate tax entity:
- receives a refund of income tax
- makes a franked distribution
- under franks a distribution (that is, the corporate tax entity makes a distribution with a franking percentage that is less than the entity's benchmark franking percentage for the franking period)
- ceases to be a franking entity (to eliminate any franking surplus in the franking account)
- makes a linked distribution - where a distribution by one entity is substituted for a distribution of another
- issues tax-exempt bonus shares (instead of making a distribution)
- streams imputation benefits to members most able to benefit from them
- pays a distribution under the rules governing payments and loans to a shareholder (Division 7A of Part III of the Income Tax Assessment Act 1936), or
- buys back a share on-market.