Franking deficit tax liability for late balancing corporate tax entities

A late balancing corporate tax entity is one that has obtained permission from the Commissioner of Taxation to use an approved substituted accounting period (SAP) where the SAP balance date is in lieu of the preceding 30 June.

For eligible entities that have elected to have their franking deficit tax (FDT) liability determined on 30 June, there are special timing rules to calculate their FDT liability.

If you have not elected, the normal rules apply to calculate your FDT liability and FDT offset.

On this page:

• Option to have FDT liability determined at 30 June
• FDT offset for late balancers
• Commissioner's discretion not to apply the reduction

Option to have franking deficit tax liability determined at 30 June

Generally, a late balancing corporate tax entity will have its liability to franking deficit tax (FDT) determined at the end of its income year, or when it ceases to be a franking entity.

However, there is an option for certain late balancing corporate tax entities to have their FDT liability determined on a 30 June basis rather than at the end of their income year. This choice is only available if:

• the entity was in existence at the end of 30 June 2002
• the entity's 2001–02 income year ended after 30 June 2002
• the entity made a valid election on or before 30 June in 2003 and every year thereafter, to have its FDT liability determined on a 30 June basis. This is even if its franking account had a deficit balance at 30 June.

To be valid, your election must be made in writing on or before 30 June. The entity must not have previously determined its FDT liability at the end of its income year (that is, not on a 30 June basis). You do not need to lodge your election with us.

If a late balancing corporate tax entity does not make a valid election it will have its FDT liability determined at the end of its income year. It will not be allowed to subsequently choose the option of having its FDT liability determined on a 30 June basis in later income years.

Refunds received within three months of 30 June

If a late balancing corporate tax entity chooses 30 June to determine its FDT liability and receives an income tax refund within three months after 30 June in that year, the refund is taken to have been received immediately before 30 June if:

• the refund relates to the 12 months ending 30 June in that year
• the franking account of the entity would have been in deficit, or in deficit to a greater extent, at 30 June if the refund had been received before that time.

As a result, the corporate tax entity will need to recalculate its FDT liability. This rule ensures that the entity does not avoid FDT by deferring the time at which a franking debit would occur in its account.

See also:

• PS LA 2007/21 Substituted accounting periods (SAPs)

FDT offset for late balancers

If you have elected to have your franking deficit tax (FDT) liability determined on 30 June, there are special rules to calculate your FDT offset.

If you have not elected, the normal rules apply to calculate your FDT offset. This is in place for the 2003–04 and later income years.

See also:

• Franking deficit tax offset calculations, reduction rule and exclusions

Late balancers with a 30 June FDT election

For late balancers who elected to have their FDT liability determined on 30 June, there are special rules to calculate your FDT liability.

These special rules (see calculation method below) for late balancers who have made a 30 June election take into account FDT liabilities incurred on or before 30 June. They then consider FDT liabilities that are incurred after 30 June in the income year. The method statement is set out in section 205-70(4) of the Income Tax (Transitional Provisions) Act 1997.

Commissioner’s discretion not to apply the reduction

The Commissioner of Taxation has the discretion not to apply the 30% FDT offset reduction. This is if it is determined that the deficit was caused by events outside the control of the entity.

For example, an entity may pay a fully franked dividend part way through the income year on the expectation that its future quarterly PAYG instalment payment will be sufficient to bring its franking account into surplus. However, an unexpected downturn in business results in its future quarterly PAYG instalment payments being less than anticipated, leaving its franking account in deficit. It would be expected that the Commissioner would exercise his discretion to allow the full tax offset because of the unexpected circumstances.

If the Commissioner exercises the discretion, the 30% reductions in steps 1 and 2 of the method statement do not apply when working out the amount of tax offset the entity is entitled to receive for the relevant year.

Details on how to apply for the Commissioner's discretion are in Section A of the Franking account tax return and instructions.