Commissioner's discretion to depart from benchmark rule
A corporate tax entity may apply to the Commissioner in writing, either before or after a distribution is made, for permission to depart from the benchmark rule.
The power to permit a departure from a benchmark percentage will be exercised by the Commissioner only in extraordinary circumstances. Generally, the circumstances justifying a departure would need to be unforeseeable and beyond the control of the entity, its members and controllers. A change in ownership of an entity would rarely amount to extraordinary circumstances sufficient to warrant a departure from the benchmark rule.
An entity seeking permission to depart from the benchmark rule should include all relevant information in support of the application. In particular, the application should address the following factors, which must be considered by the Commissioner in making a decision:
- the entity's reasons for wanting to depart or proposing to depart from the benchmark rule
- the extent of the departure or proposed departure (the greater the departure, the greater the onus on the corporate tax entity to justify it)
- whether the entity has previously sought the exercise of the Commissioners powers to permit the departure in the past (assuming the previous applications resulted from circumstances within the entity's control - if so, the onus on the entity to justify a departure will increase if the entity applies for a variation relatively frequently)
- whether a member of the entity has been or will be disadvantaged by the departure or proposed departure (for example, because the member will receive a distribution with a lower franking percentage than the distribution received by another member)
- whether a member of the entity will receive franking benefits in preference to other members of the entity as a result of the departure (in such a case the departure may be motivated by a desire to stream franking credits inappropriately), and
- any other matters that the Commissioner considers relevant.
The allocation of a franking credit at a percentage specified by the Commissioner under the provision, will be taken to comply with the benchmark rule.
Example: Permitted departure from the benchmark rule
McDonald Ltd, a corporate tax entity, conducts a farming business.
In the current franking period, its benchmark franking percentage is 80%. It declares a distribution, expecting a credit to arise in its franking account from a tax instalment to be paid later in the franking period.
The distribution will be made from profits arising from the sale of its crops. However, shortly before harvest heavy flooding devastates the crops. Therefore, McDonald Ltd pays less tax than it had expected and receives only a small credit to its franking account.
McDonald Ltd applies to the Commissioner for permission to depart from its benchmark franking percentage.
These may be considered as extraordinary circumstances since they are unforeseeable and beyond the control of McDonald Ltd. However, the Commissioner would need to consider all the relevant circumstances in deciding whether to permit a departure from the benchmark rules.
End of example