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  • Franking account tax return instructions 2019

    These instructions help you complete the Franking account tax return 2019 (NAT 1382), available in PDF at Franking account tax return 2019 (208KB)This link will download a file.

    Who must lodge a franking account tax return?

    The Franking account tax return 2019 must be completed for all Australian corporate tax entities and New Zealand franking companies that have:

    • a liability to pay franking deficit tax (FDT)
    • a liability to pay over-franking tax (OFT), or
    • an obligation to notify the Commissioner of Taxation in relation to any significant variation in their benchmark franking percentage between franking periods.
    • The Franking account tax return 2019 must also be completed for trusts that ceased to be corporate unit trusts or public trading trusts:
    • where an event that caused a franking credit or franking debit to arise happened after the trust ceased to be a corporate unit trust or public trading trust and before 1 July 2019, or
    • where the trust made a distribution (paid out of income derived before 2016–17) after it ceased to be a corporate unit trust or public trading trust and before 1 July 2019, and the trust's franking account was in surplus just before the trust made the distribution.

    See also:

    If there is such a liability or notification obligation, the entity is required to complete section A and the remaining items on the franking account tax return that are relevant to that liability or obligation. If there is no such liability or notification obligation, there is no need to lodge this tax return.

    An entity is a corporate tax entity for the purposes of Part 3-6 of the Income Tax Assessment Act 1997 (ITAA 1997) at a particular time if the entity is a company at that time, or a corporate limited partnership or a public trading trust for the income year in which that time occurs.

    A company is a New Zealand franking company if the company:

    • is a New Zealand resident company, and
    • has made an election to join the Australian imputation system.

    The Australian imputation rules generally apply to a New Zealand franking company in the same way as they apply to an Australian corporate tax entity. Special rules also apply, see Trans-Tasman imputation special rules.

    Period boxes 'or specify if part year or approved substitute period'

    The Franking account tax return 2019 is for the 2018–19 income year.

    Complete the period boxes at the top of the tax return with the period covered by this tax return if the entity:

    • is an early balancing corporate tax entity
    • is a late balancing corporate tax entity, or
    • ceases to be a franking entity part way through its income year or, in the case of a New Zealand franking company, when its election to join the Australian imputation system is revoked or cancelled part way through its income year.

    An early or late balancing corporate tax entity is one that has the Commissioner’s permission to use an income year that ends on a date other than 30 June. These entities are granted an approved substituted accounting period (SAP) which is in lieu of an income year ending on 30 June (the standard income year).

    Generally, an early balancing corporate tax entity is one that has its income year end before 30 June, while a late balancing corporate tax entity generally has its income year end after 30 June. For more information on SAPs, see Practice Statement PS LA 2007/21 Substituted Accounting Periods (SAPs).

    Example 1 Late balancing corporate tax entity

    MHO Ltd is a late balancing corporate tax entity with an approved substituted accounting period ending on 30 September 2019 instead of 30 June 2019. MHO Ltd does not elect to have its FDT liability determined on a 30 June basis. At the end of the day on 30 September 2019, MHO Ltd has a debit balance in its franking account and consequently it has a liability to pay FDT. MHO Ltd completes the period boxes with the dates 1 October 2018 to 30 September 2019.

    End of example

    A late balancing corporate tax entity that has elected to have its FDT liability determined on a 30 June basis must complete the period boxes with 01 July 2018 to 30 June 2019.

    Late balancing corporate tax entities that elect to have their FDT liability determined on 30 June

    A late balancing corporate tax entity may choose to have its FDT liability, if any, determined on a 30 June basis, rather than at the end of its income year.

    If a late balancing corporate tax entity makes this choice and it has a debit balance in its franking account on 30 June 2019, it must lodge a Franking account tax return 2019 to account for this FDT liability, on or before 31 July 2019.

    It must also lodge a subsequent franking account tax return within one month after the end of its income year if it has to:

    • account for any OFT liability, or
    • notify any significant variation in its benchmark franking percentage between franking periods.

    The OFT liability, if any, must be paid by the last day of the month immediately following the end of the income year.

    See also:

    R&D entities entitled to the R&D refundable tax offset

    A corporate tax entity which satisfies certain requirements may be eligible for the research and development (R&D) refundable tax offset under Division 355 of the ITAA 1997. Special rules ensure that the amount of R&D tax offset refunded is not immediately clawed back as a result of the entity becoming liable to franking deficit tax, due to a debit normally arising in an entity’s franking account at the time of receiving a refund of income tax. The franking debit that usually arises when a refund of income tax is received is effectively deferred (deferred franking debits) in relation to refundable R&D tax offset amounts.

    A corporate tax entity receiving the R&D refundable tax offset will not record any franking credit in its franking account for either future PAYG instalments, or payments of income tax until such time as any prior deferred franking debits are effectively offset by these types of franking credits. Other types of franking credits are not affected by these rules.

    The following example illustrates how a corporate tax entity accounts for any deferred franking debits in current and future years.

    RI Pty Ltd is an R&D entity. Over three years, it has the following transactions that would affect its franking account:

    Table 1 – RI Pty Ltd transactions affecting franking account

    Year

    Refund of income tax

    Income tax paid

    1

    $45,000

    $0

    2

    $0

    $30,000

    3

    $0

    $36,000

    Year 1

    The refund of income tax in year 1 was as a result of RI Pty Ltd receiving a refundable R&D tax offset. Therefore, although ordinarily a debit would arise in its franking account in year 1 for a refund of income tax, no debit will arise in year 1 and this amount will be a deferred franking debit. RI Pty Ltd must keep records that detail the calculation of a franking debit that would otherwise have arisen from the payment of the R&D refundable tax offset (deferred franking debit).

    Year 2

    In year 2, RI Pty Ltd pays income tax of $30,000, which would ordinarily give rise to a credit in its franking account of $30,000. However, the company must take into account any current or prior year deferred franking debits. As RI Pty Ltd had a deferred franking debit in year 1, this needs to be taken into account prior to a credit amount arising in its franking account.

    The following method statement illustrates how this is taken into account:

    Step 1 Identify income years for which the entity received a refund of income tax before the entity paid tax.

    • For RI Pty Ltd this was year 1.

    Step 2 Add up the part of the refund that is attributable to a tax offset that is subject to the refundable tax offset rules.

    • For RI Pty Ltd, the amount of R&D tax offset received was $45,000.

    Step 3 Subtract any reduction of a franking credit for any earlier payment by the entity.

    • RI Pty Ltd has not previously applied any credit against their deferred franking debit. The result after applying the method statement for year 2 is $45,000. Therefore, the franking credit of $30,000 is reduced to zero.

    The excess amount of the deferred franking debit will need to be taken into account when a future PAYG instalment amount or income tax is paid.

    Year 3

    In year 3, RI Pty Ltd pays income tax of $36,000, which would ordinarily give rise to a credit in its franking account of $36,000. However, the company must take into account any current or prior year deferred franking debit. The following method statement is again applied:

    Step 1 Identify income years for which the entity received a refund of income tax before the entity paid tax.

    • For RI Pty Ltd this was year 1.

    Step 2 Add up the part of the refund that is attributable to a tax offset that is subject to the refundable tax offset rules.

    • For RI Pty Ltd, the amount of R&D tax offset received was $45,000.

    Step 3 Subtract any reduction of a franking credit for any earlier payment by the entity.

    • $30,000 was applied against the year 1 deferred franking debit in year 2. The result after applying the method statement for year 3 is $15,000. Therefore, the franking credit of $36,000 is reduced by $15,000. As the deferred franking debits are now fully recovered, a franking credit of $21,000 arises in RI Pty Ltd’s franking account in year 3.
    Last modified: 30 May 2019QC 58641