Who can frank a distribution?

A distribution can be franked by a 'franking entity'. A franking entity is defined as a corporate tax entity which meets the residency requirements. A franking entity can be:

  • a company
  • a corporate limited partnership
  • a corporate unit trust, and
  • a public trading trust.

These entities are taxed separately from their members, at the company tax rate.

The following corporate tax entities are excluded from the definition of franking entity:

  • mutual life insurance companies, and
  • trustee companies, acting as trustee of a trust.

Broadly, a mutual life insurance company is one:

  • whose profits are divisible amongst its policy holders, or
  • it is limited by guarantee and in the 10-year period ending on 9 May 1995 it did not divide its profits amongst its members, and on winding up, the members are not entitled to any share of the profits.

Excluding mutual life insurance companies and companies acting as a trustee from those corporate tax entities that may frank a distribution is consistent with the former imputation system.

Example: Corporate tax entities

Guaski Pty Ltd is a company. It pays tax at the company level. It does not fit into one of the exclusions from the definition of a franking entity. Therefore it is a franking entity.

End of example


Example: Partnership

The business structure for Julie and Sue's curtain hanging business is a partnership. A partnership is taxed at the individual level. It is not a corporate tax entity.

End of example
    Last modified: 09 Jul 2014QC 17505