Will distributions made after the end of the income year be allowed as a deduction against income for that income year?
For the purposes of determining whether a deduction is allowable for distributions made by a co-operative company, it is proposed that the co-operative will be able to elect to have a distribution paid within three months after the end of an income year (or such further time as allowed by the Commissioner) treated as if it were paid on the last day of that income year. This proposed amendment recognises that generally a company cannot determine the final profit for the income year until after the end of that year.
There is no formal election process that the co-operative company must adhere to. It would signify its intention to have the distribution (made within three months after the end of the income year) treated as being made at the end of the income year by claiming an income tax deduction for the distribution.
If the co-operative company is claiming an income tax deduction for the distribution made, it cannot allocate any franking credits to the distribution. This is because the deduction is limited to the unfranked part of the distribution that is funded from assessable income.
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Example: Distribution made within three months after the end of the income year
RJS is a co-operative company whose income year ends on 30 June. For the 2002-03 income year, it calculates its final profit from assessable sources as $150,000. RJS decides to distribute this entire profit to its members and does not choose to allocate any franking credits to the distribution. The $150,000 is distributed on 31 August 2003 and is entirely unfranked.
As the distribution is made within three months after the end of the income year, RJS may elect to have this distribution taken to have been made on 30 June 2003. It would do this by claiming a deduction for this distribution in calculating its taxable income for the 2002-03 income year. In this example RJS would, after claiming the deduction, have a nil taxable income for the 2002-03 income year.
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