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  • Creditable portion of franking deficit tax

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    In press release C134/02 of 20 December 2002, the Government announced that the imputation system will be further simplified and streamlined by replacing the current franking additional tax provisions with a more efficient set of rules. Payment of the franking deficit tax may entitle the entity to an offset against its future income tax liabilities. It is proposed that the entity's franking deficit tax offset will be reduced by 30% in certain circumstances.

    The press release indicated that these amendments will generally apply in respect of franking deficit tax liabilities arising at the end of the 2002-03 income year and later years.

    At the time of printing, legislation to support this announcement had not been introduced into Parliament. The entitlement to offset your franking deficit tax liability will be possible once legislation has passed. Do not complete label C-Creditable portion of franking deficit tax unless, at the time you complete this franking account tax return, further information is published on our website which provides instructions on how to complete this label. For further information contact the Tax Office Business Tax Reform Infoline on 13 24 78.

    Over-franking tax

    Where the franking percentage for the distribution exceeds the benchmark franking percentage, liability for over-franking tax arises unless the Commissioner has made a determination permitting the over-franking.

    Show at label D the amount of over-franking tax worked out using the following formula:

    Franking % differential

    X

    Amount of the frankable distribution

    X

    30
    70

    where:

    • the franking % differential is the difference between the franking percentage for the frankable distribution, and either:
      • the entity's benchmark franking percentage for the franking period in which the distribution is made, or
      • the franking percentage permitted by the Commissioner in a determination allowing the corporate tax entity to depart from the benchmark rule.
       
    Further Information

    For more information refer to the fact sheet Simplified imputation: the benchmark and anti-streaming rules published on our website.

    End of further information

    Example 3
    OFT Pty Ltd made a distribution of $500 to its members and allocated franking credits of $214 resulting in a franking percentage of 100%. The benchmark franking percentage for the franking period was 50%. As OFT Pty Ltd has franked the distribution to more than the benchmark franking percentage it will be liable to pay over-franking tax calculated as follows:

    100% - 50% X $500 X

    30
    70

    = $107

    The $107 over-franking tax will be shown at label D.

    Example 4
    Late balancing entity that had its franking deficit tax liability determined on 30 June and now has an over-franking tax liability

    Felix Ltd is a public company that has an approved substituted accounting period ending on 30 September 2003 in lieu of 30 June 2003. Felix Ltd, being a late balancing corporate tax entity, elected to have its franking deficit tax liability determined on a 30 June basis. On 30 June 2003 Felix Ltd had a deficit balance of $100 in its franking account. Felix Ltd is required to lodge a Franking account tax return 2003 disclosing this liability on or before 31 July 2003.

    In addition to this, Felix Ltd had an over-franking tax liability of $150 for its first franking period (1 October 2002 to 31 March 2003) and then $200 for its second franking period (1 April 2003 to 30 September 2003).Felix Ltd is required to lodge a subsequent Franking account tax return 2003 disclosing this over-franking tax liability of $350 at label D, by 31 October 2003. In addition, Felix Ltd must print Y in the box at Section A, Is this a subsequent franking account tax return for the income year?

    Last modified: 18 Sep 2008QC 16745