Distribution is exempt income
An entity will generally not be entitled to a tax offset if the franked distribution or share of a franked distribution is exempt income. In this case, the assessable income will not be grossed-up.
There are two exceptions to the rule that an offset does not arise in respect of a franked distribution that is exempt income:
- complying superannuation funds, approved deposit funds and pooled superannuation trusts (eligible superannuation entities) and life insurance companies will be entitled to a tax offset in respect of certain exempt income, for example, income derived by a complying superannuation fund from segregated pension assets, and
- eligible income tax exempt charities and deductible gift recipients will be entitled to a tax offset. Although these bodies are exempt from income tax, they are given an entitlement to an offset to make them eligible for a refund of their share of the franking credit.