How is a distribution franked?

A corporate tax entity allocates franking credits to members by attaching the credit to the distributions it makes.

The corporate tax entity can allocate a franking credit up to the maximum franking credit allowable.

Subject to the benchmark rule, the entity can select the level of franking having regard to the existing and expected franking account surplus.

There are no formal tax requirements regarding a franking entity's decision to allocate a franking credit to a distribution.

The franking entity is required to issue a distribution statement to each shareholder who receives a distribution that includes the amount of franking credit attached to the distribution and the extent to which the distribution is franked. The requirements for distribution statements are explained later.

The provision of the distribution statement is evidence of the allocation of a franking credit to a distribution.

Example: Allocating a franking credit

The accountant and managing director of Central Distributions Ltd have a discussion on 15 November about franking the upcoming distribution. They decide it should be fully franked.

The accountant makes a note in his diary to that effect.

On 30 November the accountant makes the dividend payments to the shareholders. The accountant has effectively allocated franking credits to the distribution. He also makes the corresponding debit in the franking account. He then prepares and issues a distribution statement showing that the dividend payment is fully franked.

End of example
    Last modified: 09 Jul 2014QC 17505