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

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    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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    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 just 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 2003 to 30 June 2004. On 1 October 2003, ABC Ltd becomes a subsidiary member of a consolidated group and then exited the group from 1 February 2004. On 1 April 2004, ABC Ltd became a member of another consolidated group and, as at 30 June 2004, 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 2003
    -30 September 2003

    $500 Dr
    -a franking deficit

    $200 Cr

    1 February 2004
    -31 March 2004

    $400 Dr
    -a franking deficit

    $100 Cr

    ABC Ltd would show the total franking credits that arose in the franking account 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 17477