Deferring a franking deficit

For the purposes of calculating any liability for franking deficit tax, any refund of income tax for the year made within three months of the end of the year, is included. This prevents entities from deferring franking deficit tax by overpaying tax in anticipation of the refund.

If an entity receives a refund of tax within three months of the end of their income year they will be required to either account for the refund in their franking return, or to give a further franking return to the Commissioner, depending on when the refund is received.

Example: Deferred franking deficit tax

Blue River Pty Ltd has a credit balance of $2,000 in its franking account on 30 June 2003.

On 25 August 2003 Blue River receives a tax refund of $3,000.

Because the refund of tax of $3,000 is received within three months of the end of the income year it must be treated as though it was received before the end of the income year for franking deficit tax purposes. This means that Blue River's franking account would have had a deficit of $1000 at 30 June 2003 and an FDT liability will arise.

Blue River is required to lodge a franking return within 14 days of receiving the refund.

End of example
    Last modified: 09 Jul 2014QC 17505