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Calculation statement labels E, T4 and F

Last updated 17 January 2023

Instructions to complete the labels E, T4 and F of the calculation statement.

E – Refundable tax offsets

Write at E the total of actual tax offsets available (in dollars and cents) and not the amounts giving rise to those tax offsets.

The tax offsets shown at E are refundable, although they must first be offset against gross tax, if there is any gross tax to be paid after C and D have been applied to gross tax. Gross tax cannot be less than zero. Any excess offsets should be recorded at I and will be available as a refundable (credit) amount for the purpose of calculating the tax liability. An amount must be included at I even if it is zero (if zero, write 0). Complete I as it is mandatory.

Tax offsets to be shown at E include:

Calculation element

Amount

R&D tax offset (the amount at U item 21)

$

Film tax offsets under Division 376 of the ITAA 1997

$

Franking tax offsets claimed by life insurance companies to the extent that they relate to distributions paid on shares and other membership interests held on behalf of policy holders

$

Franking credits claimed by endorsed income tax exempt entities and deductible gift recipients that are entitled to a refund of excess franking credits. These entities may complete the Application for refund of franking credits – Endorsed income tax exempt entities and deductible gift recipients (NAT 4131), rather than the company tax return to obtain a refund

$

No-TFN tax offset claimed by RSA providers.

For more information on the no-TFN tax offset, see Tax file numbers and super contributions.

$

NRAS tax offset (the amount at J item 12)

$

Corporate tax entities can choose to claim a loss carry back tax offset which is a refundable tax offset and is the amount at S item 13.

$

The tax offset available under subsection 713-545(5) of the ITAA 1997 where a life insurance company’s subsidiary joins a consolidated or MEC group

$

Exploration credit tax offsets allowable to a life insurance company under section 418-15 of the ITAA 1997

$

Seafarer tax offset under Subdivision 61-N of the ITAA 1997

$

Total of all refundable tax offsets (write this amount at E)

$

Keep a record of the following:

  • for each type of tax offset – the amount claimed for each type
  • for franking tax offsets              
    • the distribution statement, which contains the                
      • name of the payer
      • date the dividend was received or credited
      • franked amount of the dividend
      • unfranked amount of the dividend
      • franking credit allocated to the dividend
      • amount of franking credit tax offsets allowable for each franked dividend received
      • franking percentage of the dividend
    • and other records to substantiate                
      • deductions relating to dividends
      • the type of distribution; for example, foreign source dividend, bonus shares, phasing-out dividend, liquidator’s distribution
      • the dates on which shares, for which dividends were received and tax offsets claimed, were acquired and disposed of.

T4 – Subtotal 3

Write at T4 the amount of tax payable after E has been offset against T3.

T4 cannot be less than zero.

Work out the amount at T4 as follows.

  • If the amount at E is less than the amount at T3                
    • take E away from T3
    • write the result at T4
    • write zero at I.
  • If the amount at E is more than or equal to the amount at T3                
    • take T3 away from E and write the result at I
    • an amount must be included at I even if it is zero (if zero write 0)
    • complete I as it is mandatory
    • write zero at T4 and T5
    • the amount at F may be carried forward to a later income year.

Example 18a

Dark Orange Co. Pty Ltd, a base rate entity, has the following amounts entered into its company tax return:

Tax return information

Label

Description

Amount

A

Taxable income

$30,000

B

Gross tax (25%)

$7,500

C

Non-refundable non-carry forward tax offset

$3,000

T2

Subtotal 1

$4,500

D

Non-refundable carry forward tax offset

$3,000

T3

Subtotal 2

$1,500

E

Refundable tax offset

$1,000

T4

Subtotal 3

$500

T5

TAX PAYABLE

$500

I

Tax offset refunds (remainder of refundable tax offsets)

$0

S

Amount due or refundable

$500

The lower company tax rate of 25% has been applied in this example.

Dark Orange Co. Pty Ltd has an entitlement of $3,000 of non-refundable non-carry forward tax offset, $3,000 of non-refundable carry forward tax offset and $1,000 of refundable tax offset to be used to offset against $7,500 gross tax.

  • Tax payable has been reduced to $500.
  • T5 should also show $500, indicating that no other offsets are available to be used.
  • I must also show $0.
End of example

 

Example 18b

Light Orange Co. Pty Ltd, a base rate entity, has the following amounts entered into its company tax return:

Tax return information

Label

Description

Amount

A

Taxable income

$30,000

B

Gross tax (25%)

$7,500

C

Non-refundable non-carry forward tax offset

$3,000

T2

Subtotal 1

$4,500

D

Non-refundable carry forward tax offset

$3,000

T3

Subtotal 2

$1,500

E

Refundable tax offset

$4,000

T4

Subtotal 3

$0

T5

TAX PAYABLE

$0

I

Tax offset refunds (remainder of refundable tax offsets)

$2,500

S

Amount due or refundable

$2,500

The lower company tax rate of 25% has been applied in this example.

Light Orange Co. Pty Ltd has an entitlement of $3,000 of non-refundable non-carry forward tax offset, $3,000 of non-refundable carry forward tax offset and $4,000 of refundable tax offset to be used to offset against $7,500 gross tax.

  • Tax payable has been reduced to $0.
  • Light Orange Co. Pty Ltd will have a $2,500 of refundable tax offset remaining that should be transferred to I, as tax payable can ONLY be reduced to $0.
  • An amount must be included at I even if it is zero (if zero, write 0). Complete I as it is mandatory. It can then be used to reduce Amount Due or be refunded.
  • T4 and T5 should also show $0.
End of example

F – Franking deficit tax offset

Write this amount at F.

The tax offsets shown at F are not refundable. They are only offset against gross tax, if there is any gross tax to be paid after CD and E have been applied to gross tax. Gross tax cannot be less than zero. Any excess of franking deficit tax (FDT) offset can be carried forward to the next income year.

Tax offsets to be shown at F include:

Calculation element

Amount

Current year FDT offset

Prior year FDT offset

$

Total of all FDT offsets (write this amount at F)

$

Under the simplified imputation system, entities that have incurred a FDT liability may be allowed to offset the whole or part of this amount against an income tax liability. Some special rules apply to life insurance companies to ensure that a FDT liability can only be offset against that part of the company’s income tax liability that is attributable to shareholders.

A corporate tax entity is entitled to apply the FDT offset to reduce its income tax liability for an income year if it satisfies the residency requirement and at least one of the following conditions:

  • it incurred a liability to pay FDT in that year
  • it carried forward an amount of FDT offset from a previous year, and not all the FDT offset could be applied against a previous income tax liability
  • it incurred a liability to pay FDT in a previous year when it did not meet the residency requirement, and that liability has not been included in calculating the FDT offset.

Generally, an entity satisfies the residency requirement for an income year if it is an Australian resident for more than one half of the year, or it is a resident at all times during the year when it exists.

The FDT offset rules contain provisions that reduce the amount of FDT liability that an entity can use to offset against its income tax liability in certain circumstances.

The FDT offset reduction will only apply for an income year for franking debits in an entity’s franking account arising under items 135 or 6 of the table in section 205-30 of the ITAA 1997, and if one of these items applies then any franking debit under item 2 of that table (relating to income tax refunds) will also be relevant. These debits usually arise as a result of having franked a distribution.

The amount of the FDT offset is reduced where the amount of the FDT liability, which is attributable to the franking debits for items 123, 5 and 6, is greater than 10% of the total amount of credits that arose in the franking account for the year. The amount of the reduction is equal to 30% of that part of the FDT liability attributable to those franking debits. For more information on the debits to the franking account that affect the amount of offset and how to calculate this amount, see Franking account tax return and instructions 2022.

There is an exception to the reduction rule for private companies with no previous income tax liability where certain conditions are met. The Commissioner also has discretion to allow the full FDT liability as an offset where the FDT liability arose due to circumstances that could not be anticipated or events outside the entity’s control, and it did not involve any broader exploitation of the imputation system.

To determine the amount of the FDT offset to which the company is entitled for the income year, use the following method. These steps are modified in certain circumstances. See Exclusions from the offset reduction rule.

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 135 or 6 of section 205-30 of the ITAA 1997 for that income year?

  • 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 of the FDT offset that the entity is entitled to for the current income year. Go to step 5.

Step 3: Work out the amount of FDT liability attributable to franking debits under items 1235 and 6 for that income year.

To do this add together the opening credit balance (if any) of the franking account and any franking credits that arose in the account for the income year. Take away from this amount the total of the franking debits under items 1235 and 6.

If there is an excess of franking credits over franking debits (or they are equal), the FDT offset reduction does not apply and the amount of FDT liability from step 1 is the amount of the FDT offset that the entity is entitled to for the current income year. Go to step 5.

If there is an excess of franking debits over franking credits, this is the amount of FDT liability attributable to items 1235 and 6. Go to step 4.

Step 4: If the excess of franking debits over franking credits worked out at step 3 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 is the amount of the FDT offset that the entity is entitled to for the current year. Go to step 5.

If that excess is greater than 10% of the total franking credits that arose in the franking account for that income year, the FDT offset reduction applies as follows:

Work out 30% of that excess. This is the reduction amount. Reduce the amount of FDT liability for that income year from step 1 by the reduction amount. This is the amount of the FDT offset that the entity is entitled to for the current year. Go to step 5.

Step 5: For each previous income year for which the entity did not meet the residency requirement, repeat steps 1–4 for that income year to work out the amount of that previous year’s FDT liability that is eligible to be claimed as an offset and that has not previously been claimed as an offset.

Add up the amounts covered by this step 5 for all the previous income years in which the entity did not meet the residency requirements. Go to step 6.

Step 6: For each previous income year for which the entity did meet the residency requirement and was entitled to the FDT offset, work out the amount of any excess FDT offset. This is the amount of FDT offset that exceeded the entity’s hypothetical income tax liability for that previous year (worked out as if the entity did not have an FDT offset but did have all its other tax offsets). Go to step 7.

Step 7: Add up any FDT offset amounts from steps 2, 3 or 4 (these relate to any FDT liability incurred in 2021–22) and any offsetable portions of previous year FDT amounts from steps 5 and 6. This is the total amount of FDT offset the entity is entitled to for the current income year.

Reduction in FDT that can be offset

Steps 2 to 4 in the above method statement show that the amount of the FDT offset that you can claim may be reduced in some situations. This reduced amount should equal the amount you completed at C Offsetable portion of current year FDT in section B of the Franking account tax return and instructions 2022.

For more information, see Exclusions from the offset reduction rule.

Example 19

In 2018–19, Stripe Co. Ltd franked a distribution with franking credits of $13,000 (item 1 of section 205-30 of the ITAA 1997: debit to the franking account). The company’s franking account showed that franking credits of $10,000 arose during the year. Stripe Co. Ltd’s franking account has a $3,000 deficit at the end of the income year, resulting in the company incurring an FDT liability of this amount. As the franking deficit from the item 1 debit of $3,000 is greater than 10% of the total franking credits that arose during the year, the offset is reduced by 30% of that portion of the deficit. Therefore Stripe Co. Ltd will only be able to offset $2,100 of its FDT liability of $3,000 against its current or future income tax liabilities. The remaining $900 will not be offsetable at any time.

End of example

Exclusions from the offset reduction rule

Private companies with no previous income tax liability

The FDT offset reduction rule will not apply if all the following conditions are met:

  1. the entity is a private company for the relevant year
  2. the company has not had an income tax liability for any income year before the relevant year
  3. if the company did not have the tax offset (but had all its other tax offsets) it would have had an income tax liability for the relevant year, and
  4. the amount of the liability referred to in paragraph (c) is at least 90% of the amount of the deficit in the company’s franking account at the end of the relevant year.

Commissioner’s discretion where deficit was outside the entity’s control

The Commissioner has discretion to allow the full tax offset where the FDT liability arose due to circumstances that could not be anticipated or events outside the entity’s control, and did not involve any broader exploitation of the imputation system.

For more information on the application of these exclusions, see Franking deficit tax offset. Entitlement to the full offset resulting from one of the exclusions mentioned above should have been noted by inserting the code FP or C in the CODE box in section A on the Franking account tax return 2022. If you did not do this, you will need to request an amendment to that return in order to receive the full offset.

The amount completed at E Franking deficit tax offset in this return will not necessarily be the same as the amount shown at C Offsetable portion of current year FDT in section B of the Franking account tax return 2022. For information on how to complete C Offsetable portion of current year FDT, see Franking account tax return and instructions 2022.

Continue to: Calculation statement labels T5 and G

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