Exempting entities

An exempting entity is a corporate tax entity that is 95% or more effectively owned by entities that cannot fully utilise franking credits (generally non-residents or tax exempt bodies).

When an entity ceases to be an exempting entity, it becomes a former exempting entity.

To ensure that franking credits accumulated by an exempting entity are not the target of franking credit trading, the rules:

  • limit the circumstances in which a distribution, franked with credits from an exempting company's franking account, can give rise to benefits under the imputation system
  • quarantine credits of an exempting company that becomes a former exempting company by moving them into a separate account called an exempting account, and
  • deny a recipient of a distribution franked with an exempting credit from any benefit under the imputation system as a result of that distribution, unless the recipient was a member of the entity immediately before it became a former exempting entity. Even where this is the case, the benefit of the exempting credit will be limited in the same way that it would have been had the dividend been franked by an exempting company.
    Last modified: 09 Jul 2014QC 17505