## What if a corporate tax entity franks a distribution differently to a benchmark franking percentage for a franking period?

A breach of the benchmark rule will not invalidate the allocation made to the distribution. However, a penalty will be imposed on the corporate tax entity.

The penalty is either:

• an over-franking tax, if the franking percentage for the distribution exceeds the benchmark franking percentage, or
• a franking debit, if the franking percentage for the distribution is less than the benchmark franking percentage.

The penalty is calculated by reference to the difference between the franking credits actually allocated and the franking credits that should have been allocated if the benchmark franking percentage were used.

The amount of over-franking tax or the penalty debit is worked out using the following formula:

 Franking % differential X Amount of the frankable distribution X Corporate tax rate100% - Corporate tax rate

Where:

• the corporate tax rate is 30%, and
• the franking % differential is the difference between:
• the franking percentage for the distribution, and
• either:
• the entity's benchmark franking percentage for the franking period in which the distribution is made, or
• the franking percentage stated by the Commissioner in a determination issued (refer to the following question in this fact sheet).

The over-franking tax does not give rise to a franking credit in the franking account. A corporate tax entity is required to disclose its over-franking tax liability on the Franking account tax return. Generally, the Franking account tax return should be lodged on or before the end of the month following the end of the income year. This is also the date on which the over-franking tax liability should be paid. For more information refer to the instruction guide accompanying the Franking account tax return.

For more information on what is a frankable distribution see, Simplified Imputation: franking a distribution.

 Example 8: Breaching the benchmark rule (imposition of over-franking tax)Camden Pty Ltd, a corporate tax entity, has a benchmark franking percentage for the current franking period of 50%. This benchmark franking percentage of 50% means that a frankable distribution of \$800 would have \$171 of franking credits attached. Despite the benchmark percentage being set at 50% for the franking period, Camden Pty Ltd makes a fully franked distribution of \$500, allocating \$214 franking credits to the distribution. Camden Pty Ltd has breached the benchmark rule and over-franking tax will be imposed. The amount of over-franking tax is calculated as follows: 100% - 50% X \$500 X 3070 = \$107 The \$107 over-franking tax does not give rise to franking credits. Camden Pty Ltd is required to disclose this liability on the Franking account tax return which should be lodge with the Tax Office on or before the last day of the month following the end of Camden Pty Ltd's income year - this is also the date on which the over-franking tax should be paid.