Franking deficit tax offset

Generally, the payment of franking deficit tax can be offset against future income tax liabilities in certain circumstances.

A corporate tax entity is entitled to a tax offset for an income year for which it satisfies the residency requirements and at least one of the following applies:

  • the entity has incurred a liability to pay FDT in that year
  • the entity has carried forward an amount of excess FDT offset that was unable to be applied against an income tax liability in a previous income year, or
  • the entity incurred a liability to pay FDT in a previous income year when it did not meet the residency requirement and was therefore not entitled to an FDT offset for that income year.

Broadly, an entity satisfies the residency requirement if it is an Australian resident for more than half an income year. If the entity existed for less than six months, it would pass the residency requirement if it was a resident at all times during the year when it existed.

If a deficit is greater than 10% of all franking credits that arose in the franking account in that income year, the amount that can be used in calculating the tax offset entitlement will be reduced by 30%.

The tax offset is not refundable, but any excess will be taken into account in calculating the amount of the tax offset in future income years.

There are special rules to calculate the amount of the tax offset in the first year that it is allowed (in most cases this will be the 2002-03 income year). See the Transitional issues section of this publication for more information.

There are special rules to calculate the amount of tax offset for late balancers who elect to have their FDT liability determined at 30 June.

Example: refund of tax
Always Alert Pty Ltd has a negative balance of $5,000 in their franking account on 25 June 2003.

They make a tax payment of $5,500 on 29 June 2003 to bring the balance in the franking account on 30 June 2003 to $500. On 25 August 2003 Always Alert receives a tax refund of $3,000. The refund of $3,000 occurs because of the payment on 29 June 2003.

Because this is less than three months earlier the balance of the franking account is recalculated as though the refund was received at the end of the income year.






25 June

Balance forward




29 June

Payment of tax




30 June

Refund of tax received 25 August




30 June

Franking deficit tax




Always Alert would be liable for franking deficit tax of $2,500 on 30 June 2003 to set the balance at year-end to nil. The additional franking deficit tax is due within 14 days from 25 August 2003 when the refund was paid.

End of example
    Last modified: 09 Jul 2014QC 17505