Over-franking tax
Where the franking percentage for a distribution exceeds the benchmark franking percentage, liability for OFT arises unless the Commissioner has made a determination permitting the over-franking (or the corporate tax entity is a listed public company that satisfies certain criteria so that it is not subject to the benchmark rule, or is a 100% subsidiary of such a company).
Show at D Over-franking tax the amount of OFT worked out using the following formula:
amount of the frankable distribution × (franking % differential ÷ applicable gross-up rate)
- where the franking % differential is the difference between the franking percentage for the frankable distribution and either
- the entity’s benchmark franking percentage for the franking period in which the distribution is made, or
- the franking percentage permitted by the Commissioner in a determination allowing the corporate tax entity to depart from the benchmark rule
- where the applicable gross-up rate is the corporate tax gross-up rate of the entity making the distribution for the income year in which the distribution is made. The corporate tax gross-up rate is calculated using the following formula:
(100% − your corporate tax rate for imputation purposes) ÷ your corporate tax rate for imputation purposes.
For 2021–22, the corporate tax rate for imputation purposes can be 25% or 30%. To determine your corporate tax rate for imputation purposes, see Allocating franking credits. See also Changes to company tax rates.
Example 4: Entity's franking distribution percentage exceeds benchmark percentage resulting in OFT
In 2021–22, Salomon Pty Ltd made a distribution of $500 to its members. Salomon Pty Ltd's corporate tax rate for imputation purposes is 30% and they allocated franking credits of $214, resulting in a franking percentage of 100%. The benchmark franking percentage for the franking period was 40%.
The franking % differential is 100% − $40% = 60%
The applicable gross-up rate is (100% − 30%)/ 30% = 2.3333
As Salomon Pty Ltd has franked the distribution to more than the benchmark percentage, it is liable to OFT calculated as follows:
$500 × (60% ÷ 2.3333) = $128
Salomon Pty Ltd shows the $128 OFT in D.
End of example
Example 5: Late balancing entity that had its FDT liability determined on 30 June and now has an OFT liability
Felix Ltd is an unlisted public company that has an approved substituted accounting period ending 30 September 2022 in lieu of 30 June 2022. Felix Ltd, being a late balancing corporate tax entity, elected to have its FDT liability determined on a 30 June basis. On 30 June 2022 Felix Ltd had a deficit balance of $100 in its franking account. Felix Ltd is required to lodge a Franking account tax return 2022 disclosing this liability on or before 31 July 2022.
In addition to this, Felix Ltd had an OFT liability of:
- $150 for its first franking period (1 October 2021 to 31 March 2022), and
- $200 for its second franking period (1 April 2022 to 30 September 2022).
Felix Ltd must:
- lodge a subsequent Franking account tax return 2022 disclosing this OFT liability of $350 at D, by 31 October 2022
- print X in the Yes box at section A: Is this a subsequent franking account tax return for the income year?.
End of example