Offsetable portion of current year FDT

Where a corporate tax entity incurs an FDT liability in a year for which it is a resident entity for imputation purposes, it is able to claim the whole or part of that amount as a tax offset against its income tax liability for that year or a subsequent year for which it is a resident entity for imputation purposes.

The maximum amount of the offset is the amount of the FDT liability. However, this is reduced where an entity has, directly or indirectly, made a franked distribution, and the deficit is, at least in part, attributable to franking debits that arose in the franking account under items 1, 2, 3, 5 and 6 of the table in section 205-30 of the ITAA 1997 (but not item 2 alone) and that part is greater than 10% of the total credits that arose in the franking account for 2021–22. This is called the ‘FDT offset reduction rule’.

For certain late balancing entities, the year is the 12-month period ending on 30 June. Special provisions apply to these entities, which may affect the calculation of the offset.

Where the FDT offset reduction rule applies, the tax offset is reduced by an amount equal to 30% of the portion of the deficit attributable to items 1, 2, 3, 5 and 6 franking debits (see Table 4).

The amount of FDT liability able to be offset will not be reduced where:

• the entity is a private company with no previous income tax liability that satisfies certain criteria
• the Commissioner’s discretion is exercised to allow the full offset because the deficit was due to events beyond the entity’s control, or
• the entity did not have any item 1, 3, 5 or 6 debits in the franking account for the year the deficit arose.

If you show the letter P or F at the code box in section A of this tax return, the offset will not be reduced, and the amount you show at C Offsetable portion of current year FDT is equal to the FDT liability you show at B.

If you show the letter C at the code box in section A of this tax return, show the reduced offset amount at C Offsetable portion of current year FDT. However, the full amount of the offset will be allowed to a corporate tax entity that satisfies the residency requirement for imputation purposes if the Commissioner exercises the discretion to allow it.

For more information about the situations where the offset reduction rule does not apply, see You may be entitled to the full amount of your current year FDT offset.

How to calculate the reduced offset amount to include at C Offsetable portion of current year FDT

The full amount of the FDT liability recorded by a corporate tax entity at B can be used to calculate its FDT offset because of the current year's deficit if the:

• entity is a resident entity for imputation purposes for the relevant year, and
• the FDT liability attributable to items 1, 2, 3, 5 and 6 (of the table below) is less than or equal to 10% of the total franking credits that arose in the franking account for the income year.

This same amount should be recorded in section B at C Offsetable portion of current year FDT.

Subject to the exceptions mentioned above and the special rule for late balancing entities, the reduced offset amount that should be shown at C Offsetable portion of current year FDT is calculated using the following method.

Step 1 Work out the amount of FDT liability that the entity has incurred in the income year.

Step 2 Did any franking debits arise in the entity's franking account under items 1, 3, 5 or 6 of section 205-30 of the ITAA 1997?

• If yes, go to step 3.
• If no, the FDT offset reduction does not apply. The amount of FDT liability from step 1 is the amount shown at C Offsetable portion of current year FDT on the Franking account tax return. This is the amount that can be claimed as a tax offset by a corporate tax entity that satisfies the residency requirement for imputation purposes.

Step 3 Work out the amount of FDT liability attributable to items 1, 3, 5 and 6, plus any item 2 franking debits.

• Add together the opening credit balance (if any) of the franking account and any franking credits that arose in the account for the year (see A Credits that arose in your franking account). Subtract from this amount the total of the items 1, 2, 3, 5 and 6 debits.
• If the result is zero or positive, the FDT offset reduction does not apply and the amount of FDT liability from step 1 can be claimed as a tax offset by a corporate tax entity that satisfies the residency requirement for imputation purposes. This is the amount that you show at C Offsetable portion of current year FDT on the franking account return.
• If the result is negative, this is the amount of FDT attributable to items 1, 2, 3, 5 and 6.

Step 4 If the step 3 amount for the income year is negative and is less than or equal to 10% of the total franking credits that arose in the franking account for the same year, the FDT offset reduction does not apply and the amount of FDT liability from step 1 can be claimed as a tax offset by a corporate tax entity that satisfies the residency requirement for imputation purposes. This is the amount that you show at C Offsetable portion of current year FDT on the franking account return.

If the step 3 amount for the year is negative and is greater than 10% of the total franking credits that arose in the franking account for the same year, the FDT offset reduction applies as follows:

• Work out 30% of the step 3 amount. This is the reduction amount.
• Take the reduction amount away from the amount of FDT liability at step 1.
• The result is the amount that can be claimed as a tax offset by a corporate tax entity that satisfies the residency requirement for imputation purposes. This is the amount that you show at C Offsetable portion of current year FDT on the Franking account tax return.

The amount you show at C Offsetable portion of current year FDT of this Franking account tax return is only step 1 in the calculation to determine the whole amount that a corporate tax entity that satisfies the residency requirement for imputation purposes is entitled to as an FDT offset against any income tax liability arising in Company tax return 2022. See the Company tax return instructions 2022 for more information on how to calculate this amount.

Corporate tax entities that do not satisfy the residency requirement for imputation purposes are not entitled to the offset. However, they include at C Offsetable portion of current year FDT the amount calculated in accordance with the above method.

If debits arose in the company’s franking account under items 1, 3, 5 or 6 of the table in section 205-30 of the ITAA 1997, ensure you have completed K Debits not subject to the FDT offset penalty.