The core rules introduced by the simplified imputation system were contained in the following Acts.
New Business Tax System (Imputation) Act 2002
This Act contains the core provisions for the simplified imputation system.
This Act outlines what rules the entity should have regard to when franking a distribution, including the amount of franking credits that should be attached to the distribution and the obligations the entity has in respect of providing distribution statements to members when making a distribution to them.
New Business Tax System (Over-franking Tax) Act 2002
This Act contains rules regarding the imposition of over-franking tax and establishes the definition and formulae for working out over-franking tax.
The benchmark rule lays down the framework for ensuring that, over time, the benefit of franking credits is spread more or less evenly across members in proportion to their ownership interest in the entity. To prevent the undermining of this framework, four specific rules are required to ensure that franking credits representing tax paid on behalf of all members of an entity are not allocated to only some of them. These rules are referred to as anti-streaming rules, because they prevent the streaming of franking credits to certain members.
New Business Tax System (Franking Deficit Tax) Act 2002
This Act defines franking deficit tax. The Act also establishes the amount of tax that is to be paid.
New rules introduced relating to franking accounts include:
- franking account entries to be recorded on a tax paid basis rather than an after-tax distributable profits basis
- the franking account will operate on a rolling balance account rather than a yearly account with an annual balance transfer.
Division 207 of the ITAA 1997 sets out the tax effects for an entity that receives a franked distribution, whether the distribution is received directly from a corporate tax entity or indirectly through a partnership or trust.