Franking account

A franking account records the amount of tax paid that a franking entity can pass on to its members as a franking credit.

Each entity that is, or has ever been, a corporate tax entity has a franking account.

Special rules apply to consolidated group and multiple entry consolidated (MEC) group members (see Special rules for consolidated groups and MECs).

Franking entity

An entity is a 'franking entity' if it is a corporate tax entity.

A corporate tax entity includes a company, corporate limited partnership or public trading trust, but does not include a mutual life insurance company or a company acting in its capacity as trustee of a trust.

Franking credits and debits

A franking credit is most commonly recorded in the account if the entity receives a franked distribution, pays income tax or a PAYG instalment, or incurs a liability for franking deficit tax (FDT). The credit is equal to the amount of tax or PAYG instalment paid, the franking credit attached to the distribution received, or the FDT liability incurred.

Where an income tax liability is only partially paid, franking credits will not arise for the amount that remains outstanding. Partial payments made towards outstanding activity statement liabilities will be allocated in accordance with our policy. Franking credits will only arise to the extent that a partial payment is allocated towards a PAYG Instalment liability.

A franking debit is most commonly recorded in the account if the entity pays a franked distribution to its members or receives a refund of income tax. The debit is equal to the franking credit attached to the distribution or the amount of tax refunded.

The franking account is a rolling balance account, which means that the balance of the account rolls over from one income year to another. At any time the franking account can be either in surplus or deficit.

The account is in surplus at a particular time if the sum of franking credits in the account exceeds the sum of franking debits. The account is in deficit at a particular time if the sum of franking debits exceeds the sum of franking credits.

Next step:

• Franking deficit tax

See also:

• Special rules for consolidated groups and MECs
• When does a franking debit arise? ITAA 1997
• When does a franking credit arise? ITAA 1997