Exceeding the maximum franking credit

A corporate tax entity cannot allocate more than the maximum franking credit to a distribution. For a member receiving a franked distribution, if the amount of the franking credit stated in a distribution statement exceeds the maximum franking credit on the distribution, the member is limited to the maximum franking credit.

The franking account will also be debited with the maximum franking credits rather than the amount shown on the distribution statement.

Example: Exceeding the maximum franking credit amount

CD&E is a corporate limited partnership.

On 23 December CD&E makes a distribution of $7,000 to the senior partner. CD&E issues a distribution statement showing that the payment has $5,000 franking credit attached.

The maximum franking credit that can be attached to a $7,000 distribution is $3,000 ($7,000 x 30/70).

The senior partner should only include the maximum franking credit of $3,000 in their grossed-up income, and their claim for a tax offset is also limited to $3,000.

CD&E should debit their franking account with the maximum franking credit of $3,000.

End of example
    Last modified: 09 Jul 2014QC 17505