• Section B Franking deficit tax and over-franking tax

    Attention

    Warning:

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

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    Total franking credits for the period

    Show at label A the total franking credits for the period to which this franking account tax return relates. This amount is the total of all franking credits that arose during the income year (or the 12 month period ending on 30 June for certain late balancing corporate tax entities).

    The amount at label A should reflect a 'tax paid' basis. As a result of the introduction of the simplified imputation system on 1 July 2002 all corporate tax entities are required to maintain a franking account that reflects a 'tax paid' basis. Consequently, the former class C franking account balance, which reflected a 'taxed income' basis, had to be converted on 1 July 2002. For more information on how to convert the class C franking account balance refer to the following two fact sheets:

    These are published on our website.

    Total franking credits for subsidiary members moving in and out of the consolidation regime

    When a corporate tax entity becomes a subsidiary member of a consolidated group, it must determine its franking account balance just before the time of entry (the 'joining time'). If the subsidiary has a deficit balance in its franking account just before the joining time, it is liable to pay franking deficit tax. The period during the income year before the joining time or after exit from the consolidated group is a 'non-membership period'. If there is a liability to pay franking deficit tax the subsidiary must show at label A the total franking credits that arose during the non-membership period ending immediately before the joining time. During the period in which a corporate tax entity is a subsidiary member of a consolidated group, its franking account is inoperative.

    Where a corporate tax entity has operated outside the group for more than one non-membership period during a particular income year, the amount of franking credits that arose for that year is worked out by calculating the amount of franking credits that arose for each non-membership period. The subsidiary member's total franking credits received for the income year, shown at label A, is the total of each of the credits that arose in each non-membership period.

    Attention

    Note:
    The amount shown at label A-Total franking credits for the period in this franking account tax return does not necessarily equal the amount shown at item 7, label J-Franking credits on the Company tax return 2003. Amounts at label A relate to all the franking credits that arose in the franking account during the period to which this franking account tax return relates. By contrast, item 7, label J in the company tax return relates only to franking credits that arose because of franked distributions received during the income year.

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    Franking deficit tax

    Under the simplified imputation system a liability to pay franking deficit tax will arise where one of the following occurs:

    • A corporate tax entity has a franking deficit in its franking account at the end of its income year, or at the time it ceases to be a franking entity.
    • Just before the entity becomes a subsidiary member of a consolidated group the subsidiary has a franking deficit in its franking account.
    • A corporate tax entity receives certain refunds of income tax within three months after the end of the income year, or within three months after it ceases to be a franking entity, and a franking deficit (or an increase in a franking deficit) would have arisen if the refund had been received in the income year. For more information see A refund of income tax affecting a franking deficit tax liability in these instructions.

    A franking entity is a corporate tax entity that is not a mutual life insurance company. Where the entity is a company that is a trustee of a trust, it will be a franking entity at a particular time if it is not acting in its capacity as trustee of the trust at that time.

    A late balancing corporate tax entity that elects to have its franking deficit tax determined on a 30 June basis will be liable to pay franking deficit tax where a franking deficit exists at the end of 30 June or immediately before it ceases to be a franking entity. It will also be liable to pay franking deficit tax if it receives certain refunds of income tax within three months of the period ending on 30 June-see A refund of income tax affecting a franking deficit tax liability in these instructions. Refer also to Important messages for late balancing corporate tax entities that elect to have their FDT liability determined on 30 June.

    A franking deficit exists where the total franking debits exceed the total franking credits.

    Show at label B the sum of the amounts of the franking deficit in the franking account:

    • at the end of the income year (or the 12 month period ending on 30 June) or at the time the entity ceased to be a franking entity, taking into account any refunds taken to have been received in that period (see A refund of income tax affecting a franking deficit tax liability), and
    • if applicable, just before the entity becomes a subsidiary member of a consolidated group.

    This is the amount of franking deficit tax that is payable.

    Attention

    Note:
    If you are required to complete label F-see A refund of income tax affecting a franking deficit tax liability-then you must include the amount shown at label F (if any) in the amount at label B.

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    Franking deficit tax liability for subsidiary members moving in and out of the consolidation regime

    Where a corporate tax entity becomes a subsidiary member of a consolidated group it must determine its franking account balance just before the time of entry(the 'joining time'). If the subsidiary has a franking deficit in its franking account just before the joining time, it is liable to pay franking deficit tax. Include at label B the amount of franking deficit in the franking account jus before the joining time.

    Where a corporate tax entity has operated outside the group for more than one period during a particular income year, the amount of franking deficit tax liability that arose for that year is worked out by calculating the amount of franking deficit balance that was in the franking account just before each of the joining times. Include at label B the total of the deficit balances that were in the subsidiary member's franking account just before each of the joining times.

    Example 2
    ABC Ltd has an income year from 1 July 2002 to 30 June 2003. On 1 October 2002, ABC Ltd becomes a subsidiary member of a consolidated group and then exited the group from 1 February 2003. On 1 April 2003,ABC Ltd became a member of another consolidated group and, as at 30 June 2003, it was still a member of this other consolidated group.

    In calculating its franking deficit tax liability for the income year, ABC Ltd must determine the deficit balances that it had in its franking account just before it joined each of the consolidated groups.

    ABC Ltd's non-membership periods, the franking deficit balances and the total franking credits that arose during each non-membership period are as follows:

    Non-membership period

    Balance in franking account just before the joining time

    Total franking credits during non- membership period

    1 July 2002-
    30 September 2002

    $500 Dr-a franking deficit

    $200 Cr

    1 February 2003-
    31 March 2003

    $400 Dr-a franking deficit

    $100 Cr

    ABC Ltd would show the total franking credits for each non-membership period ($300) at label A and the total of the franking deficit tax balances ($900) at label B.

    Last modified: 18 Sep 2008QC 16745