The benchmark rule
Key points about the new benchmark and anti-streaming rules:
- The benchmark rule forms the framework for ensuring that over time, the benefit of franking credits is spread more or less evenly across members in proportion to their ownership interest in a corporate tax entity.
- There are also three specific rules proposed to ensure that franking credits representing tax paid on behalf of all members of an entity are not allocated to only some of the members. These rules are referred to as anti-streaming rules, because they prevent the streaming, or disproportionate allocation, of franking credits to certain members.
Companies who distributed dividends before 1 July 2002 were required to ensure that a dividend was franked to the extent permitted by the company's franking account surplus at the date the dividend was paid.
This was called the 'required franking amount' rule. The aim of the rule was to address streaming opportunities.
The imputation system includes a benchmark franking percentage rule which allows the franking entity to select its preferred rate of franking for its distributions.
To comply with the benchmark rule, frankable distributions within a franking period must all be franked to the same extent that the first frankable distribution made in that period is franked. This is known as the benchmark rule.
The benchmark franking percentage rule does not apply to distributions that are not classed as frankable distributions.
Example: Benchmark rule
Stanley Supplies Pty Ltd makes a distribution franked to 50% at the start of the franking period. The benchmark rule provides that Stanley Supplies Pty Ltd will have to frank all its frankable distributions to 50% for that franking period.
End of example