Is this a subsequent Franking account tax return for the income year?
Answer YES only if this is a subsequent Franking account tax return that is being lodged because either:
- the corporate tax entity has received a refund of income tax that affects its FDT liability: see A refund of income tax affecting a FDT liability, or
- the corporate tax entity is a late balancing entity that
- elected to have its FDT liability determined on a 30 June basis
- was required to lodge a Franking account tax return on or before 31 July 2022 disclosing an FDT liability, and
- has an OFT liability or an obligation to disclose a significant variation in its benchmark franking percentage.
If this is a subsequent Franking account tax return for the income year, print X in the Yes box at this question; otherwise print X in the No box.
See also
What is your franking account balance at the end of the period?
Write the amount of your entity’s franking account balance (including nil balances) at the end of the income year (or the 12-month period ending on 30 June); or immediately before it ceased to be a franking entity; or, in the case of a New Zealand franking company, when its election to join the Australian imputation system is revoked or cancelled.
In the code box next to the amount, print:
- S if you have a surplus, or
- D if you have a deficit.
What is your venture capital sub-account balance at the end of the period?
If your entity is a pooled development fund (PDF) or it ceased to be a PDF during the income year, write the amount of your venture capital sub-account balance (including nil balances) at the end of the income year (or the 12-month period ending on 30 June); or immediately before the entity ceased to be a PDF.
In the code box next to the amount, print:
- S if you have a surplus, or
- D if you have a deficit.
If your entity is not a participating PDF and you do not know the balance of your venture capital sub-account, print UNKNOWN instead of the amount.
You may be entitled to the full amount of your current year FDT offset
A corporate tax entity which satisfies the residency requirement for imputation purposes for an income year (the relevant year) is able to claim the whole or part of the amount of its FDT liability incurred in that year as a tax offset against its income tax for that, or a subsequent, relevant year.
The maximum offset that an entity is entitled to claim is the amount of the FDT liability. However, this is reduced where the FDT liability attributable to certain debits that arose in the franking account for the relevant year is greater than 10% of the total franking credits that arose in the franking account for the relevant year. This is known as the ‘FDT offset reduction rule’. There are some Exception for private companies with no previous income tax liability.
For certain late balancing entities the relevant year is the 12-month period ending on 30 June. Special provisions apply to these entities which may affect the calculation of the offset.
Which franking debits trigger the application of the FDT offset reduction rule?
The FDT offset reduction will only apply for an income year in which the franking deficit is attributable to certain franking debits (‘attributable debits’). Principally, these are debits that arise under items 1, 3, 5 or 6 of the table in section 205-30 of the ITAA 1997. These debits arise in circumstances where an entity has, directly or indirectly, made a franked distribution.
If an entity has one or more of these debits, then the attributable debits also include debits arising under item 2 of the table in section 205-30 of the ITAA 1997 (franking debits that arise from a refund of income tax).
Print F in the code box if the entity had a franking deficit but did not have any item 1, 3, 5 or 6 franking debits in the franking account in the income year in which the deficit arose. The FDT offset reduction will not apply in this case.
Exception for private companies with no previous income tax liability
The FDT offset reduction will not apply if:
- the entity is a private company for the relevant year
- the company has not had an income tax liability for any income year before the relevant year
- the company would have had an income tax liability for the relevant year if it did not have the tax offset (but had all its other tax offsets), and
- the amount of the liability referred to in paragraph (c) is at least 90% of the amount of the deficit in the company’s franking account at the end of the relevant year.
Print P in the code box if the entity had item 1, 3, 5 or 6 debits and is a private company that satisfies all the criteria in (a) to (d).
Commissioner’s discretion where a deficit arose due to events beyond the entity’s control
The Commissioner has a discretion not to apply the FDT offset reduction where events that caused the deficit were outside the control of the entity. The Commissioner will generally consider a franking deficit to have arisen due to circumstances that were outside the entity’s control if the events that gave rise to the deficit were not readily foreseeable and could not be influenced by the entity, and no broader exploitation of the imputation system is involved.
For example, a company franks a distribution part way through an income year in the reasonable expectation that its future quarterly pay as you go (PAYG) instalment payments in the income year would be sufficient to ensure that it would not have a deficit in its franking account at the end of the income year. An unexpected downturn in business has resulted in the company’s future quarterly PAYG instalment payments being less than expected. In these circumstances, it would be expected that the Commissioner would make a determination to allow the full tax offset.
Print C in the code box if the entity wishes to apply for the discretion referred to above, and provide an attachment to the Franking account tax return which outlines the circumstances in which the FDT liability arose. Ensure that the attachment is clearly titled Franking deficit tax – request for exercise of Commissioner’s discretion. The attachment must include the following information:
- entity name and tax file number (TFN)
- income year in which the FDT liability arose and the amount of the franking deficit, and
- detailed reasons why the deficit arose due to events that were unanticipated or outside the control of the entity.
The attachment must be signed by the public officer of the entity or an agent duly authorised by the entity. We will consider each application on a case-by-case basis and will notify the applicant of our decision.
Continue to: Section B – Franking deficit tax and over-franking tax