Franking deficit tax

Under the simplified imputation system, a liability to pay FDT 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, or, in the case of a New Zealand franking company, when its election to join the Australian imputation system is revoked or cancelled – for more information, see Trans-Tasman Imputation special rules.
• The subsidiary has a franking deficit in its franking account just before the entity becomes a subsidiary member of a consolidated group.
• 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 FDT liability.

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 FDT determined on a 30 June basis will be liable to pay FDT where a franking deficit exists at the end of 30 June or immediately before it ceases 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. It will also be liable to pay FDT if it receives certain refunds of income tax within three months of the period ending on 30 June.

See also

• A refund of income tax affecting a FDT liability
• Late balancing corporate tax entities that elect to have their FDT liability determined on 30 June

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

Show at B FDT 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 or, in the case of a New Zealand franking company, when its election to join the Australian imputation system is revoked or cancelled, taking into account any refunds taken to have been received in that period (see A refund of income tax affecting a FDT liability), and
• if applicable, just before the entity becomes a subsidiary member of a consolidated group.

This is the amount of FDT that is payable.

Where a corporate tax entity incurs an FDT liability, it is generally able to claim the whole or part of that amount as a tax offset against its future income tax liabilities. See Offsetable portion of current year FDT.

If you are required to complete F FDT attributable to refund (see A refund of income tax affecting a FDT liability) then you must include the amount shown at F (if any) in the amount at B FDT.

FDT liability for subsidiary members moving in and out of a consolidated group

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 FDT. Include at B the amount of franking deficit in the franking account just before the joining time.

The period during the income year before the joining time or after exit from the consolidated group is a ‘non-membership period’. There could be multiple exits and entries within one income year. Where a corporate tax entity has operated outside the group for more than one period during a particular income year, the amount of FDT 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 B the total of the deficit balances that were in the subsidiary member’s franking account just before each of the joining times.

Where a corporate tax entity has more than one non-membership period during a particular income year, attach a letter to the Franking account tax return detailing the amount of credits that arose in your franking account and the franking tax liability for each non-membership period. Also provide the name of the head company of each consolidated group of which your company was or is a member. We need this information to process your Franking account tax return correctly.

A refund of income tax affecting a FDT liability

An entity is taken to have received an income tax refund for an income year immediately before the end of the income year or immediately before it ceased to be a franking entity if:

• the refund is paid within three months after the end of the income year or within three months after it ceased to be a franking entity (and it is attributable to a period in the year during which the entity was a franking entity), and
• the franking account would have been in deficit, or in deficit to a greater extent, at the end of that income year or immediately before it ceased to be a franking entity, had the refund been received during the income year or before the entity ceased to be a franking entity.

This rule ensures that an entity does not avoid FDT by deferring the time at which a franking debit occurs in its franking account.

Some late balancing corporate tax entities may elect to have their FDT liability determined on 30 June. If a late balancing corporate tax entity makes this election it will be taken to have received an income tax refund immediately before 30 June or immediately before it ceased to be a franking entity if:

• the refund is received either within three months after 30 June, or within three months immediately after it ceased to be a franking entity
• the refund is attributable to the 12-month period ending on 30 June, or is attributable to a period within that 12 months during which the entity was a franking entity, and
• the franking account would have been in deficit, or in deficit to a greater extent, at the end of 30 June or immediately before it ceased to be a franking entity, had the refund been received immediately before 30 June, or immediately before it ceased to be a franking entity.

If you receive a refund of the kind explained above and you are already obliged to lodge (and have not yet lodged) a Franking account tax return, then you can account for the refund and your other liabilities or obligations in a single tax return. If you do not account for the refund in that single tax return, then you need to account for it in a further tax return. If you do account for the refund in a further tax return:

• print X in the Yes box at section A, Is this a subsequent franking account tax return for the income year? and
• write the amount of the FDT attributable to the refund of income tax in section B, F FDT attributable to refund. Complete F only if this Franking account tax return is a further tax return. You must include the amount at F (if any) in the amount at B FDT.

Amount of FDT

If, before receipt of the refund, there was a franking deficit 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 franking entity, then the franking deficit that should be written at B is that deficit plus the amount of the refund.

If, before receipt of the refund, there was no franking deficit 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 franking entity, then the franking deficit that should be written at B is the amount of the refund reduced by the franking surplus (if any) existing at that time.

If you have completed F, include the amount at F in the amount at B. Any FDT that you have already paid will be taken into account.