• Franking account

    A franking account records the amount of tax paid that a franking entity can pass on to its members as a franking credit.

    Each entity that is, or has ever been, a corporate tax entity has a franking account.

    Special rules apply to consolidated group and multiple entry consolidated (MEC) group members (see Special rules for consolidated groups and MECs).

    Franking entity

    An entity is a 'franking entity' if it is a corporate tax entity.

    A corporate tax entity includes a company, corporate limited partnership, corporate unit trust, or public trading trust, but does not include a mutual life insurance company or a company acting in its capacity as trustee of a trust.

    Franking credits and debits

    A franking credit is most commonly recorded in the account if the entity receives a franked distribution, pays income tax or a PAYG instalment, or incurs a liability for franking deficit tax (FDT). The credit is equal to the amount of tax or PAYG instalment paid, the franking credit attached to the distribution received, or the FDT liability incurred.

    Where an income tax liability is only partially paid, franking credits will not arise for the amount that remains outstanding. Partial payments made towards outstanding activity statement liabilities will be allocated in accordance with our policy. Franking credits will only arise to the extent that a partial payment is allocated towards a PAYG Instalment liability.

    A franking debit is most commonly recorded in the account if the entity pays a franked distribution to its members or receives a refund of income tax. The debit is equal to the franking credit attached to the distribution or the amount of tax refunded.

    The franking account is a rolling balance account, which means that the balance of the account rolls over from one income year to another. At any time the franking account can be either in surplus or deficit.

    The account is in surplus at a particular time if the sum of franking credits in the account exceeds the sum of franking debits. The account is in deficit at a particular time if the sum of franking debits exceeds the sum of franking credits.

    Example: Franking account balance

    Date

    Description

    Dr

    Cr

    Balance

     

    Balance forward

     

     

    $0

    21 July 2013

    PAYG instalment payment

     

    $100

    $100

    21 October 2013

    PAYG instalment payment

     

    $150

    $250

    21 January 2014

    PAYG instalment payment

     

    $200

    $450

    21 April 2014

    PAYG instalment payment

     

    $150

    $600

    1 May 2014

    Tax refund

    $200

     

    $400

    27 June 2014

    Fully franked dividend of $70 received

     

    $30

    $430

    30 June 2014

    Franked distribution to members

    $300

     

    $130

    As the franking account is in surplus as at 30 June, franking deficit tax doesn't apply and no adjustments are necessary at the end of the year.

     

    End of example

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    Last modified: 01 Dec 2016QC 47302