Consolidation Reference Manual

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C2 Assets

C2-4 Worked examples - cost setting on entry

Entry Step D (adjust for over-depreciated assets)

C2-4-640 Reduction for over-depreciated assets (step D) - administrative short cuts

Description

This example shows how the tax cost setting amount for over-depreciated assets may be calculated (step D of cost setting process) using either one of two administrative short cuts.

Commentary

After the joining entity's allocable cost amount (ACA) is allocated among its reset cost base assets in proportion to their market values, and any necessary reductions are made for revenue-like assets (step C of cost setting process), a further reduction may be required for each over-depreciated asset (step D).

This further reduction is required where all of the following tests are satisfied for the particular asset:

the asset is over-depreciated at the joining time
the head company's tax cost setting amount (as calculated so far) is more than the joining entity's terminating value for the asset (its tax written down value at the joining time)
the joining entity paid an unfranked or partly franked dividend during the period from when it acquired the asset to the joining time
an amount representing the unfranked or partly franked dividend had not been further distributed as a dividend before the joining time to a recipient that was not entitled to the inter-corporate dividend rebate, and
the dividends were paid out of profits that were sheltered from income tax, at least in part, by over-depreciation of the asset.

The amount of the reduction is the least of:

the over-depreciation amount - this is the lesser of the excess of market value of an asset over its adjustable value just before the joining time (tax written down value at the joining time), and the excess of the asset's cost over its adjustable value at that time
the amount of income that continues to be sheltered from tax, or
the amount by which the tax cost setting amount would, apart from this provision, exceed the joining entity's terminating value of the asset.

This reduction prevents an increase in the adjustable value of a depreciating asset where there has been a tax deferral resulting from its over-depreciation. The potential for indefinite deferral arises where a company holds an over-depreciated asset at the joining time, and the income sheltered from tax by the over-depreciation was distributed as an unfranked dividend to a recipient who was entitled to the inter-corporate dividend rebate.

Note
Determining the extent to which dividends have been paid out of profits sheltered from income tax

A last-in-first-out (LIFO) method can be used to determine the extent to which dividends were paid out of profits that were sheltered from income tax for the purpose of calculating any reduction to the tax cost setting amounts for over-depreciated assets.

Under the LIFO method, two assumptions are made. Firstly, it is assumed that dividends were paid out of profits of income years in order from the most recent to the earliest. Once the profits have been allocated between income years according to the first assumption, it is further assumed that unfranked distributions were paid out of profits of the relevant year that were not subject to income tax before they were paid out of profits that were subject to income tax. → former subsection 705-50(3A), ITAA 1997; paragraphs 1.135 - 1.140 and 1.147 - 1.148 of the Explanatory Memorandum to Tax Laws Amendment (2004 Measures No. 6) Bill 2004

Changes to the over-depreciation provisions The over-depreciation provisions in the tax cost setting rules have been modified for an entity that becomes a member of a consolidated group between 9 May 2007 and 30 June 2009. In this case a head company will only need to look at five years of dividend history immediately before the joining time to determine whether an over-depreciation adjustment is required in relation to the joining entity's asset. Effective from 1 July 2009, the over-depreciation adjustment in section 705-50 has been repealed, so it will no longer apply to over-depreciated assets of entities that become subsidiary members of a consolidated group on or after that date. → Tax Laws Amendment (2010 Measures No. 1) Act 2010 (No. 56 of 2010)

A worked example showing how to calculate the over-depreciation adjustment for each asset is provided separately. → 'Reduction for over-depreciated assets (step D)', C2-4-610

In many cases taxpayers will not have sufficient information available to work out the reduction for over-depreciation on an asset-by-asset basis or in strict accordance with former section 705-50. In other cases, taxpayers may be able to work out the amount of reduction accurately, but with significant costs of compliance. For these reasons, the administrative short cut methods outlined in Figure 1 may be used to work out the reduction amounts for over-depreciated assets. These short cut methods give a reasonable approximation of the reduction required by former section 705-50 and will be accepted by the ATO.

These administrative short cut methods have been discussed in draft form with representatives of business and the accounting profession to ensure they achieve the legislation's policy objectives and also meet the needs of the user. If these short cut methods are not suitable for your circumstances and you would like to use another administrative approach, contact the ATO for guidance.

The administrative short cut methods are summarised in Figure 1, which is followed by four examples that demonstrate how they work.

Examples

Example 1 demonstrates the Aggregate Method and Example 2 demonstrates the Annual Method. Both are based on the same facts where the joining entity has no profits at the joining time.

Example 3 demonstrates how to estimate the proportion of unfranked dividends paid by listed public companies that reach entities not entitled to the inter-corporate dividend rebate.

Example 4 demonstrates both the Aggregate Method and the Annual Method where a joining entity has retained profits that are not accrued to the joined group. This can occur where an entity joins an existing group as a result of a 100% acquisition by the group. In this case, there is no step 3 amount as there is no retained profit accrued to the group.

Note
Short cuts cannot be used for grapevines and horticultural plants
While former section 705-50 applies to all depreciating assets under the Uniform Capital Allowances regime in Division 40, these short cut methods are not available for grapevines and horticultural plants.
Figure 1: Summary of the over-depreciation short cut process
1 AGGREGATE METHOD 2 ANNUAL METHOD
1A Determine the potential over-depreciation:

For all depreciating assets on hand at the joining time, total the excess of the BWDV (book written down value) over the TWDV (tax written down value).

2A Determine the potential over-depreciation:

For all depreciating assets on hand at the joining time, total the excess of the BWDV over the TWDV for each year back to the dates of acquisition and work out the incremental increase of the excess each year.

1B Limit the amount of over-depreciation to the extent it could result in untaxed profits:

Multiply the result from 1A by 70%.

2B Limit the amount of over-depreciation to the extent it could result in untaxed profits:

Multiply the results from 2A for each year by 70%.

1C Reduce the potential over-depreciation adjustment for untaxed profits still in retained earnings at the joining time:

Reduce the result from 1B above by the amount of

IB x [a/(a+b+c)] where:

a = unfrankable retained earnings at the joining time (excluding any ACA transitional step 3 amount for the joining entity)

b = unfranked amount of dividends paid by the joining entity since 1.7.1987, and

c = the ACA transitional step 3 amount for the joining entity.

2C Reduce each year's potential over-depreciation adjustment for untaxed profits still in retained earnings at the joining time:

Reduce each year's result from 2B above by the amount of 2B x [d/(d+e+f)] where:

d = untaxed profits of that year to the extent they are in unfrankable retained earnings at the joining time (excluding those profits that are in any ACA transitional step 3 amount for the joining entity)

e = unfranked amount of dividends from untaxed profits of that year paid by the joining entity (or by a transferor under a Subdivision126-B rollover, to the extent they relate to over-depreciation of the rollover assets), and

f = untaxed profits of that year that are in the ACA transitional step 3 amount for the joining entity.

1D Remove double counting of revenue tax losses:

Reduce the result from 1C above to the extent that the over-depreciation resulted in any revenue tax losses in the ACA step 5 adjustment for the joining entity.

2D

Other adjustments that may reduce the over-depreciation amount:

Reduce each year's result from 2C above to the extent resulting unfranked dividends paid were pre-acquisition dividends in ACA step 4.

1E Limit adjustment to total unfranked dividends paid and transitional step 3 ACA amounts:

Reduce the result from 1D above to the extent that it exceeds the total of the following amounts:

(a)
unfranked dividends paid by joining entity since 1.7.1987, and
(b)
transitional step 3 unfranked profits.

2E Reduce each year's result from 2D above to the extent that the over-depreciation resulted in any revenue tax losses in the ACA step 5 adjustment for the joining entity.
2F Reduce each year's result from 2E above to the extent that direct or indirect shareholders paid tax on the resulting unfranked dividends paid (excluding dividends that have resulted in a 2D reduction)
1F Estimate the over-depreciation reduction amount per asset:

Allocate the result from 1E above between each asset that has been prima facie stepped up proportionately based on the amount of each asset's prima facie cost base step up (prior to the application of the over-depreciation adjustment).

2G Add each year's result from 2F above.
2H Limit adjustment to total unfranked dividends paid and transitional step 3 ACA amounts:

Reduce the result from 2G above to the extent that it exceeds the total of the following amounts:

(a)
unfranked dividends paid by the joining entity (or by a transferor under a Subdivision 126-B rollover, to the extent they relate to over-depreciation of the rollover assets), and
(b)
transitional step 3 unfranked profits.

2I Estimate the over-depreciation reduction amount per asset:

Allocate the result from 2H above to each asset proportionately based on each asset's excess of BWDV over TWDV.

Notes to Figure 1, Aggregate Method

This is the simplest method for calculating the over-depreciation reduction and will minimise the cost of compliance. Broadly, this approach compares book and tax written down values at the joining time and draws some conclusions as to how the difference has given rise to prior unfranked dividends or untaxed profits that are attributable to over-depreciation.

While less precise than the Annual Method, the Aggregate Method is still considered to provide a reasonable estimate of the over-depreciation adjustment. Taxpayers should note that a different result will arise under the Annual Method. This could be higher or lower than the result under the Aggregate Method.

Step 1A: In some cases taxpayers may have assets with book written down values (BWDV) less than their tax adjustable values (TWDV); for example, where there have been write-downs of depreciating assets for accounting purposes. Where the difference is significant, inclusion of those assets in step 1A could materially impact on the result. If an asset's adjustable value (its tax written down value) is more than 1% of the joining entity's ACA and its TWDV is greater than its BWDV, that asset should be excluded from the calculation.

Step 1C variable b: Taxpayers should not include pre-1 July 1987 dividends in the variable 'b' amount. Ordinarily, those dividends pre-date the dividend imputation system, and taxpayers may be required to undertake a detailed analysis of those dividends to ascertain the extent to which they were paid out of untaxed profits. In the interests of minimising the costs of compliance, those dividends are not included in the Aggregate Method.

Step 1D: Where losses have been subtracted at step 5 in calculating the ACA they are not counted again in working out the reduction for over-depreciation. The relevant amount can be estimated by considering the ACA step 5 losses for each relevant year, and the difference between the total book and tax depreciation claim for that year. This information should be readily available in the joining entity's prior year income tax returns or working papers. Where only part of a loss for a year remains unused at the joining time, the component attributable to over-depreciation can be worked out by apportioning the remainder between over-depreciation and profits sheltered from tax for other reasons (e.g. R & D) on a pro-rata basis.

Step 1E amount (a): If ascertainable, exclude any such dividends paid before the acquisition date of depreciating assets held at the joining time. To maintain consistency with step 1C, only dividends paid from 1 July 1987 should be counted.

Step 1F: In order to keep compliance costs to a minimum, the Aggregate Method involves a proportional allocation of the overall over-depreciation adjustment amount based on the initial cost base step-up.

Note
Where Law Administration Practice Statement PS LA 2004/12 is being applied in determining the tax cost setting amounts (TCSAs) for depreciating assets, this step should be applied subject to paragraph 44 of that practice statement. That is, first allocate the result from step 1E to significant individual assets and to categories of non-significant assets; then, within a category of non-significant assets, allocate the result across the individual assets within that category on the basis of their book written down values.

Notes to Figure 1, Annual Method

This approach considers over-depreciation on a yearly basis, but again by reference only to assets on hand at the joining time. Over-depreciation may have been recovered for assets sold before the joining time. In effect, this method 'reconstructs' the historical differences between book and tax depreciation. It also considers unfranked dividends and untaxed profits on a year by year basis.

This method also differs from the Aggregate Method in that it takes account of dividends paid out of pre-acquisition profits (step 2D). It also has regard to whether direct or indirect shareholders paid tax on unfranked dividends relating to over-depreciation (step 2F).

These additional steps mean that this method may more closely approximate the adjustment required by former section 705-50.

Step 2A: In some cases taxpayers may have assets with book written down values (BWDV) less than their tax adjustable values (TWDV); for example, where there have been write-downs of depreciating assets for accounting purposes. Where the difference is significant, inclusion of those assets in step 2A could materially affect the result. If an asset's adjustable value (TWDV) is more than 1% of the joining entity's ACA and its TWDV is greater than its BWDV, that asset should be excluded from the calculation.

Tip: The easiest way to work out the annual amounts may be to import details of all depreciating assets, along with the book and tax WDVs, depreciation rates and methods into a spreadsheet. Then reconstruct annual book and tax depreciation for each asset for each year.

Note: Reconstruction of book and tax WDV for assets on hand at the joining time results in a reasonably accurate calculation of the total over-depreciation amount. However this requirement may give rise to a significant compliance burden. As an alternative, companies may base the step 2A amounts on the actual difference between book and tax WDV year by year. This alternative may have the effect of over-stating the over-depreciation for a year, because its use could involve counting the difference for assets held in that year but not held at the joining time. However, this would have a trade-off in reduced compliance costs.

Step 2B: The percentage of 70% used here reflects the current general company tax rate. Even though different tax rates may have applied in the years leading up to the joining time, restatement of future tax liabilities at the new rates will release (or draw) profits such that the amount available for distribution will be aligned with the tax rate at the joining time.

Taxpayers may use a percentage based on the tax rate applicable for a particular year in this step, instead of using 70%, provided adjustments are made to the potential over-depreciation Figure to reflect the impact of changes in the tax rate on the deferred (or future) tax liability account and the consequential change to distributable profits in the year the tax rate changed.

Step 2C variable e: Variable 'e' in the formula could potentially include pre-1 July 1987 dividends, which pre-date the dividend imputation system. Taxation Determination TD 2004/4 confirms that dividends paid before 1 July 1987 are unfranked dividends for the purposes of former section 705-50 and therefore should be counted. Note, that this will not be the case where the entity has joined the group on or after 9 May 2007, as the head company will only need to look at five years of dividend history immediately before the joining time to determine whether an over-depreciation adjustment is required in relation to the joining entity's asset → Tax Laws Amendment (2010 Measures No. 1) Act 2010 (No. 56 of 2010). Given the removal of the inter-corporate dividend rebate for non-group public company shareholders from 1 July 2000, dividends after 30 June 2000 should not be counted in variable 'e' where the public company examined is not a wholly-owned subsidiary of another resident public company.

Variable 'e' should also include unfranked dividends paid by a transferor of a depreciating asset under a Subdivision 126-B rollover, to the extent the dividend was paid out of profits of the transferor that were sheltered from tax by over-depreciation of the transferred asset. If the annual method is also used to work out the over-depreciation adjustment for depreciating assets still held by the transferor when it joins the consolidated group, dividends related to rollover assets counted at variable 'e' in step 2C in the transferee's calculation should not be counted in steps 2C and 2H of the transferor's calculation. This will prevent double counting of those dividends.

Step 2D: To the extent that dividends paid out of profits sheltered from income tax because of over-depreciation have been subtracted at step 4 in calculating the ACA, they are not counted again in working out the reduction for over-depreciation. This amount should be subtracted at step 2D of the short cut process.

Step 2E: This is the same process as in step 1D.

Step 2F: Where unfranked dividends from profits sheltered from tax by over-depreciation have been paid as (or used to pay) unfranked dividends by a public company, it may not be possible for the consolidated group to work out the extent to which those dividends have ultimately reached the hands of recipients not entitled to the inter-corporate dividend rebate. Such a tracing exercise would also involve significant costs.

In those cases, an analysis of the public company's share register should be undertaken to estimate the breakdown between those shares for which it is clear the shareholder would not be entitled to the inter-corporate dividend rebate (e.g. an individual or non-resident), and those for which it is unclear who may be the ultimate recipient (e.g. a nominee). A methodology for estimating the step 2F amount, without the need for tracing, is explained in example 3.

Where a taxpayer is able to demonstrate that a higher percentage of dividends ultimately reaches beneficial shareholders who are not entitled to the inter-corporate dividend rebate, that higher percentage may be used at step 2F.

Note:
Where a public company does not use either the Aggregate or Annual method but calculates the over-depreciation adjustment otherwise in accordance with the requirements of former section 705-50, the ATO will accept Step 2F being used to ascertain the extent to which the unfranked dividends reached the hands of direct or indirect shareholders who were not entitled to the inter-corporate dividend rebate.
Step 2F is not available to be used in conjunction with the Aggregate Method.

Step 2H amount (a): If ascertainable, excluding any such dividends paid before the acquisition date of depreciating assets held at the joining time. However, dividends paid by a transferor of an asset subject to a rollover under Subdivision 126-B that relate to over-depreciation of the asset in the hands of the transferor should be included.

If the annual method is also used to work out the over-depreciation adjustment for depreciating assets still held by the transferor when it joins the consolidated group, dividends related to rollover assets counted at variable 'e' in step 2C in the transferee's calculation should not be counted in steps 2C and 2H of the transferor's calculation. This will prevent double counting of those dividends.

Given the removal of the inter-corporate dividend rebate for non-group public company shareholders from 1 July 2000, dividends after 30 June 2000 should not be counted in amount 'a' where the public company examined is not a wholly-owned subsidiary of another resident public company.

Step 2I: The Annual Method uses a proportional allocation of the overall over-depreciation adjustment amount based on the difference between the book written down value (BWDV) and the tax adjustable value or written down value (TWDV). This is different to the allocation under the Aggregate Method, and more closely approximates the methodology required by former section 705-50.

Note
Where Law Administration Practice Statement PS LA 2004/12 is being applied in determining the TCSAs for depreciating assets, this step should be applied subject to paragraph 44 of that practice statement. That is, first allocate the result from step 1E to significant individual assets and to categories of non-significant assets; then, within a category of non-significant assets, allocate the result across the individual assets within that category on the basis of their book written down values.

Example 1 - Aggregate Method

Facts

Sub Co was incorporated by Hold Co on 1 July 1995. Hold Co elects to form a consolidated group on 1 July 2002. Sub Co's financial position is as follows:

Table 1: Sub Co - financial position at 30 June 2002 ($)
Cash 13,144 Capital 50,487
Stock on hand 6,693 Retained earnings (loss) (298)
Depreciating assets 9,520 Asset revaluation reserve 863
Other assets 23,850 Provision for long service 1,393
Future tax asset 418 Future tax liability 1,180
Provision for income tax 0
53,625 53,625

Sub Co's franking account has a credit balance on 20 June 2002 of $56. After adjusting for hypothetical payments etc. under subsection 705-90(4), the hypothetical balance is $56.

Sub Co's depreciation schedules for the year ending 30 June 2002 are shown in tables 2 and 3. In this case the market values (MV) of depreciating assets are equal to their book values at the joining time.

Sub Co incurs a tax loss of $640 in the year ending 30 June 2002. Tax deductions related to over-depreciation and R & D for that year are $378 and $26 respectively. As the total loss exceeds these tax deductions, $378 of the loss is treated as being attributable to deductions related to over-depreciation. But for the loss incurred in the year ending 30 June 2002, Sub Co would have had $99 in undistributed profits accrued to the head company able to be counted in ACA step 3.

Before the consolidated group was formed, Sub Co paid a total of $1,135 in unfranked dividends. These were partly attributable to profits sheltered from tax by over-depreciation and partly attributable to profits sheltered from tax by concessional deductions for research and development expenditure.

Table 2: Accounting depreciation schedule for year ending 30 June 2002
Asset Cost
($)
Opening WDV ($) Method Life
(years)
Rate
%
Depreciation
($)
Closing WDV ($)
Asset 1 1,100 732 PC 15 6.7 74 658
Asset 2 1,200 480 PC 10 10 120 360
Asset 3 1,300 1,040 PC 20 5 65 975
Asset 4 1,400 980 PC 10 10 140 840
Asset 5 1,500 1,283 DV 20 7.5 96 1,187
Asset 6 1,600 1,493 PC 15 6.7 107 1,386
Asset 7 1,700 1,700 DV 5 30 510 1,190
Asset 8 1,800 781 DV 12 13 101 679
Asset 9 1,900 1,487 DV 40 4 59 1,428
Asset 10 2,000 929 DV 8 12 111 817
Total 10,904 1,385 9,520
Table 3: Income tax depreciation schedule for year ending 30 June 2002
Asset Cost
($)
Opening WDV ($) Method Life
(years)
Rate
%
Depreciation
($)
Closing WDV ($)
Asset 1 1,100 385 PC 15 13 143 242
Asset 2 1,200 0 PC 10 17 0 0
Asset 3 1,300 624 PC 20 13 169 455
Asset 4 1,400 686 PC 10 17 238 448
Asset 5 1,500 1,110 PC 20 13 195 915
Asset 6 1,600 1,280 DV 15 20 256 1,024
Asset 7 1,700 1,700 DV 5 30 510 1,190
Asset 8 1,800 320 DV 12 25 80 240
Asset 9 1,900 1,010 DV 40 10 101 909
Asset 10 2,000 235 DV 8 30 70 165
Total 7,350 1,762 5,588

Calculation

Worksheet 1: ACA calculation


Note 1. Where a joining entity has an accounting liability that is recognised for accounting purposes earlier than for income tax purposes (such as a provision for long service leave), section 705-80 requires a notional ACA calculation. If this results in a different amount for the ACA, the liability must be adjusted to the extent of the difference. In this case the notional ACA is $975 less than the ACA calculated without applying section 705-80. The provision for long service leave must therefore be reduced by this amount. See section CC2-4-245 of this manual which shows how section 705-80 applies, including administrative short cuts.
Note 2. Under subsection 705-70(1), the future tax liability (FTL) of the joining entity in respect of the depreciating assets is counted at step 2. The amount to be counted is redetermined under subsection 705-70(1A) so that it equals the FTL to be carried by the head company. However, as Sub Co is a transitional entity, section 701-32 of the Income Tax (Transitional Provisions) Act 1997 turns off subsection 705-70(1A). Therefore, the amount added at step 2 is $1,180.
Note 3. Step 5 excludes losses accrued to the group to the extent that they have reduced the accounting profits available for distribution: subsection 705-100(2). The balance of retained earnings prior to the year commencing 1 July 2001 was $99. This amount would have been counted at step 3 as it would have been payable as a fully franked dividend, but for the loss made in the 2001-02 year. The step 5 amount is reduced accordingly.

Retained cost base assets

Cash ($13,144) and trading stock ($6,693) retain their existing tax values. In this example Sub Co is a continuing majority owned entity, so items of trading stock are treated as retained cost base assets.

The remainder of the ACA after setting the tax cost of retained cost base assets is $33,763. This is allocated among the reset cost base assets (table 4). The tax cost setting amount (TCSA) for revenue-like assets, such as depreciating assets, is limited to the greater of their market value or terminating value (i.e. tax adjustable value at the joining time). Assets 11 to 19 are not revenue-like assets.

For assets 11 to 19 the amounts in the last column are the final TCSAs. For assets 1 to 10, further calculations are required (see tables 5 and 6).

Table 4: Apportionment of ACA to reset cost base assets ($)
Asset Cost Terminating value Market value Apportionment TCSA before reduction Section 705-40 max. amount Excess for revenue-like assets TCSA after reduction
Depreciating assets
1 1,100 242 658 33,763 x 658/38,870 571 658 0 571
2 1,200 0 360 33,763 x 360/38,870 313 360 0 313
3 1,300 455 975 33,763 x 975/38,870 847 975 0 847
4 1,400 448 840 33,763 x 840/38,870 730 840 0 730
5 1,500 915 1,187 33,763 x 1,187/38,870 1,031 1,187 0 1,031
6 1,600 1,024 1,386 33,763 x 1,386/38,870 1,204 1,386 0 1,204
7 1,700 1,190 1,190 33,763 x 1,190/38,870 1,034 1,190 0 1,034
8 1,800 240 679 33,763 x 679/38,870 590 679 0 590
9 1,900 909 1,428 33,763 x 1,428/38,870 1,240 1,428 0 1,240
10 2,000 165 817 33,763 x 817/38,870 710 817 0 710
Sub-total 15,500 5,588 9,520 8,270 9,520 8,270
Non-depreciating assets
11 2,100 2,204 2,210 33,763 x 2,210/38,870 1,920 - - 1,920
12 2,200 2,309 2,320 33,763 x 2,320/38,870 2,015 - - 2,015
13 2,300 2,413 2,430 33,763 x 2,430/38,870 2,111 - - 2,111
14 2,400 2,518 2,540 33,763 x 2,540/38,870 2,206 - - 2,206
15 2,500 2,623 2,550 33,763 x 2,550/38,870 2,215 - - 2,215
16 2,600 2,728 2,600 33,763 x 2,600/38,870 2,258 - - 2,258
17 2,700 2,833 2,500 33,763 x 2,500/38,870 2,172 - - 2,172
18 2,800 2,938 2,450 33,763 x 2,450/38,870 2,128 - - 2,128
19 2,900 3,043 2,750 33,763 x 2,750/38,870 2,389 - - 2,389
Good-will 0 0 7,000 33,763 x 7,000/38,870 6,080 - - 6,080
Total 38,870 33,763 33,763

Table 5: Adjustment for over-depreciation using the Aggregate Method ($)

Step 1F: The amount at step 1E is allocated in table 6 to each of the depreciating assets on a pro-rata basis according to the potential step-up of tax value.

Table 6: Allocation of over-depreciation aggregate adjustment ($)
Asset TWDV (AV) TCSA (table 4) Potential step up Pro-rata according to potential step up Over-depreciation adjustment Final TCSA
1 242 571 329 1,135 x 329/2,839 132 439
2 0 313 313 1,135 x 313/2,839 125 188
3 455 847 392 1,135 x 392/2,839 157 690
4 448 730 282 1,135 x 282/2,839 113 617
5 915 1,031 116 1,135 x 116/2,839 46 985
6 1,024 1,204 180 1,135 x 180/2,839 72 1,132
7 1,190 1,034 0 1,135 x 0/2,839 0 1,034
8 240 590 350 1,135 x 350/2,839 140 450
9 909 1,240 331 1,135 x 331/2,839 132 1,108
10 165 710 546 1,135 x 546/2,839 218 492
Total 5,588 8,270 2,839 1,135 7,236
Note that the over-depreciation adjustment must not reduce the TCSA below the depreciating asset's tax written down value (i.e. its adjustable value) at the joining time.

Example 2 - Annual Method

Facts

The facts are the same as for example 1. The taxpayer wishes to use the Annual Method outlined in Figure 1 to estimate the total amount of reduction for over-depreciation.

Table 7: Known data
Asset Cost
$
Tax method Tax depreciation rate (%) Tax depreciation y/e 30.6.02
($)
TWDV 30.6.02
($)
Book method Book depreciation rate (%) Book depreciation y/e 30.6.02
($)
BWDV 30.6.02 ($)
1 1,100 PC 13 143 242 PC 6.7 74 658
2 1,200 PC 17 0 0 PC 10 120 360
3 1,300 PC 13 169 455 PC 5 65 975
4 1,400 PC 17 238 448 PC 10 140 840
5 1,500 PC 13 195 915 DVM 7.5 96 1,187
6 1,600 DV 20 256 1,024 PC 6.7 107 1,386
7 1,700 DV 30 510 1,190 DVM 30 510 1,190
8 1,800 DV 25 80 240 DVM 13 101 679
9 1,900 DV 10 101 909 DVM 4 59 1,428
10 2,000 DV 30 71 165 DVM 12 111 817

Table 8: Calculating TWDV extrapolating backwards to acquisition time ($)
        TWDV TWDVs calculated for these dates
Asset Cost 30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96 1.7.95
1 1,100 242 385 528 671 814 957 1,100  
2 1,200 0 0 0 0 0 0 0 0
3 1,300 455 624 793 962 1,131 1,300
4 1,400 448 686 924 1,162 1,400
5 1,500 915 1,110 1,305 1,500
6 1,600 1,024 1,280 1,600
7 1,700 1,190 1,700
8 1,800 240 320 427 569 759 1,013 1,350 1,800
9 1,900 909 1,010 1,122 1,247 1,385 1,539 1,710 1,900
10 2,000 165 235 336 480 686 980 1,400 2,000
Total 5,588 7,350 7,035 6,591 6,175 5,789 5,560 5,700

Assets 1 to 5 were depreciated for tax purposes using the prime cost (PC) method. The TWDVs as at 30.6.01 were calculated by simply adding back the annual depreciation amount to the TWDV at 30.6.02. This method was used for each asset until its cost was reached. Note that no amount has been calculated for asset 2, as this asset had been written off for tax purposes before the joining time. Further work is necessary to work out the TWDVs for asset 2.

Assets 6 to 10 were depreciated using the diminishing value (DV) method. Asset 6's TWDV as at 30.6.01 was worked out by multiplying the TWDV at 30.6.02 by 100/80. The

Figure of 80 is 100 minus the depreciation rate of 20% - i.e. $1,024 x 100/80 = $1,280. For the next year back, the TWDV was worked out at $1,280 x 100/80. This method was used for each asset until its cost was reached.

Table 9: Calculating BWDV extrapolating backwards to acquisition time ($)
    BWDV BWDVs calculated for these dates
Asset 30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96 1.7.95
1 658 732 805 879 953 1,026 1,100  
2 360 480 600 720 840 960 1,080 1,200
3 975 1,040 1,105 1,170 1,235 1,300
4 840 980 1,120 1,260 1,400
5 1,187 1,283 1,388 1,500
6 1,386 1,493 1,600
7 1,190 1,700
8 679 781 897 1,031 1,185 1,362 1,566 1,800
9 1,428 1,487 1,549 1,614 1,681 1,751 1,824 1,900
10 817 929 1,055 1,199 1,363 1,549 1,760 2,000
Total 9,520 10,904 10,120 9,373 8,657 7,949 7,330

Table 9 uses the same methods used in table 8 to calculate the BWDVs.

Table 9 shows asset 2 was acquired on 1.7.95. We can now go back and work out the TWDVs for that asset, working forward from the acquisition time calculated in table 9.

Table 10: Calculating TWDV for asset 2 and adding to totals for table 8 ($)
    TWDV TWDVs calculated for these dates
Asset Cost 30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96 1.7.95
2 1,200 0 0 180 384 588 792 996 1,200
Sub-total from table 8 5,588 7,350 7,035 6,591 6,175 5,789 5,560
Total 5,588 7,350 7,215 6,975 6,763 6,581 6,556

Table 11: Step 2A - Incremental increase in excess of book and tax written down values ($)
  30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96 Total
BWDVs from table 9 9,520 10,904 10,120 9,373 8,657 7,949 7,330  
TWDVs from table 10 5,588 7,350 7,215 6,975 6,763 6,581 6,556  
Excess 3,932 3,554 2,905 2,398 1,893 1,368 774  
Incremental increase 378 649 507 505 525 594 774 3,932

Table 12: Step 2B - Limit to extent it could result in untaxed profits ($)
  30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96
Result after step 2A 378 649 507 505 525 594 774
70% = result after step 2B 265 454 355 353 368 416 542
Table 13: Step 2C - Reduction for certain retained earnings ($)
  30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96
Result after step 2B table 12 265 454 355 353 368 416 542
D 0 0 0 0 0 0 0
E 0 0 218 264 137 355 161
F 0 0 0 0 0 0 0
2B x [d/(d+e+f)] 0 0 0 0 0 0 0
Result after step 2C 265 454 355 353 368 416 542

There were no undistributed profits at the joining time, so no amounts for 'd' and 'f' in the formula in table 13. Accordingly there is no adjustment for step 2C. The amounts for 'e' are based on an analysis of the unfranked dividends paid and summarised in table 14.

Table 14: Summary of dividends paid before the joining time
Dividend paid Out of this year's profits
Date Franked $ Unfranked $ Year ending Taxed $ Untaxed $
1.12.96 2,039 161 30.6.96 2,039 161
1.12.97 2,145 355 30.6.97 2,145 355
1.12.98 2,663 137 30.6.98 2,663 137
1.12.99 2,136 264 30.6.99 2,136 264
1.12.00 2,282 218 30.6.00 2,282 218
1.12.01 1,600 0 30.6.01 1,600 0

Table 15: Step 2D - Reduction for step 4 ACA amount attributable to over-depreciation ($)
  30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96
Result after step 2C 265 454 355 353 368 416 542
Step 4 ACA distributions attributable to over-depreciation 0 0 0 0 0 0 0
Result after step 2D 265 454 355 353 368 416 542

There were no distributions of profits subtracted at ACA step 4.

Table 16: Step 2E - Reduction for step 5 ACA amount attributable to over-depreciation ($)
  30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96
Result after step 2D 265 454 355 353 368 416 542
Step 5 ACA losses attributable to over-depreciation 265 0 0 0 0 0 0
Result after step 2E 0 454 355 353 368 416 542

Table 17: Step 2F - Reduction for distributions to individuals etc. not entitled to inter-corporate dividend rebate ($)
  30.6.02 30.6.01 30.6.00 30.6.99 30.6.98 30.6.97 30.6.96
Result after step 2E 0 455 354 353 368 416 542
Distributions traced to individuals etc. 0 0 0 0 0 0 0
Result after step 2F 0 455 354 353 368 416 542

All of the unfranked rebatable dividends were retained by the head company in this example.

Step 2G totals the year-by-year results after step 2F, i.e. $2,488.

Table 18: Step 2H - Limit to unfranked dividends plus transitional step 3 ACA ($)
Total unfranked dividends paid 1,135
Add: transitional step 3 ACA amount 0
Result of step 2H 1,135

The maximum adjustment for over-depreciation is limited to the step 2H amount of $1,135. This amount is allocated to the depreciating assets in table 19.

Table 19: Step 2I - Allocation of over-depreciation total adjustment under Annual Method ($)
Asset TWDV (AV) BWDV Excess of BWDV over TWDV Pro-rata according to excess of BWDV over TWDV Over-depreciation adjustment TCSA (table 4) Final TCSA
1 242 658 416 1,135 x 416/3,932 120 571 451
2 0 360 360 1,135 x 360/3,932 104 313 209
3 455 975 520 1,135 x 520/3,932 150 847 697
4 448 840 392 1,135 x 392/3,932 113 730 617
5 915 1,187 272 1,135 x 272/3,932 79 1,031 953
6 1,024 1,386 362 1,135 x 362/3,932 104 1,204 1,099
7 1,190 1,190 0 1,135 x 0/3,932 0 1,034 1,034
8 240 679 439 1,135 x 439/3,932 127 590 463
9 909 1,428 519 1,135 x 519/3,932 150 1,240 1,090
10 165 817 652 1,135 x 652/3,932 188 710 522
Total 5,588 9,520 3,932 7,136

Note that the over-depreciation adjustment must not reduce the TCSA below the depreciating asset's tax written down value (i.e. its adjustable value) at the joining time.

The method of apportionment in table 19 is different to that used in table 6, as the Annual Method provides more detailed information, allowing a better estimate of the reduction amount than is afforded by the Aggregate Method.

Example 3

Estimating the proportion of unfranked dividends paid by listed public companies that reach entities not entitled to the inter-corporate dividend rebate

For the purpose of working out the amount to be excluded at step 2F of the short cut method for calculating the over-depreciation reduction amount, the ATO will accept an estimate worked out as follows:

1. Examine the largest 20 shareholders named in the public company's annual report, determine the category (in table 20) that each falls into and apply the proportions set out in the table to the share percentage held by each of these top 20 shareholders to arrive at a ratio for the total shareholding of the top 20.

2. Apply the ratio worked out in step 1 for the top 20 shareholders to the remaining shareholders to arrive at an estimated breakdown between entitled and not entitled for those remaining shareholders.

3. Add step 1 and step 2 amounts.

Table 20: Ratios for different shareholder categories for use in determining proportions of unfranked dividends to be treated as reaching entities that are and are not entitled to the inter-corporate dividend rebate

Shareholder entity category Proportion of dividends paid to this category of entity treated as ultimately reaching recipients that are entitled to the inter-corporate dividend rebate Proportion of dividends paid to this category of entity treated as ultimately reaching recipients that are not entitled to the inter-corporate dividend rebate
Public company 55% 45%
Life insurance company 25% 75%
Corporate unit trust 15% 85%
Public trading trust 15% 85%
Other trusts 15% 85%
Superannuation fund 0% 100%
Private company 0% 100%
Nominee 25% 75%
Individual 0% 100%
Non-resident 0% 100%
Exempt body 0% 100%

The final percentage for all shareholders in the 'not entitled' category after step 3 is treated as being the proportion of unfranked dividends that ultimately reached beneficial owners not entitled to the inter-corporate dividend rebate. The balance is treated as the proportion not reaching such beneficial owners.

The results under this method for a sample financial year may be used for other years, provided there has been no significant change in the shareholder mix. Where there has been a significant change, sampling will be necessary either side of the period of abnormal trading to ensure the samples are more representative of the mix of shareholder categories for those years.

The proportion of life companies, other public companies, trusts, and nominees treated as being entitled to the inter-corporate dividend rebate has been based on statistical analysis of shareholder types, retention of profits rates, and varying entitlements to the rebate depending on the type of entity involved.

Where a taxpayer is able to demonstrate that a higher percentage of dividends ultimately reaches beneficial shareholders who are not entitled to the inter-corporate dividend rebate, that higher percentage may be used at step 2F.

Note: This method for estimating the step 2F amount is only available for dividends paid by listed public companies.

Facts

Company X is a listed public company. It elects to consolidate, with S Co as one of its wholly owned subsidiaries. It received unfranked rebatable dividends from S Co before consolidation, attributable to profits made by S Co that were sheltered from tax by over-depreciation. Company X used these funds to pay unfranked dividends. Company X is unable to work out precisely the extent to which these dividends reached beneficial owners not entitled to the inter-corporate dividend rebate. This is due primarily to large shareholdings by nominees. Company X's largest 20 shareholders are listed in table 21. Shareholder 5 is a life insurance company.

Calculation

The shareholders are first categorised according to entitlement to the inter-corporate dividend rebate (table 21).

Table 21: Estimating the amount to be subtracted under step 2F

  Entitlement to inter-corporate dividend rebate
Shareholder % held Ratio of entitled to not entitled Entitled Not entitled
Top 20
1. Nominee A 9.1 25:75 2.28 6.82
2. Nominee B 6.4 25:75 1.60 4.80
3. Nominee C 5.1 25:75 1.28 3.82
4. Individual X 2.2 0:100 2.20
5. Public company A (life insurance coy) 1.7 25:75 0.42 1.28
6. Public company B 1.5 55:45 0.80 0.70
7. Nominee E 1.2 25:75 0.30 0.90
8. Superannuation fund 1.0 0:100 1.00
9. Corporate unit trust 0.8 1:6 0.10 0.70
10. Nominee F 0.8 25:75 0.20 0.60
11. Non-resident 1 0.5 0:100 0.50
12. Public company D 0.4 55:45 0.22 0.18
13. Pooled development fund 0.2 0:100 0.20
14. Non-resident 2 0.1 0:100 0.10
15. Private company A 0.1 0:100 0.10
16. Trustee 1 0.1 1:6 0.01 0.09
17. Trustee 2 0.1 1:6 0.01 0.09
18. Non-resident 3 0.1 0:100 0.10
19. Public trading trust 0.1 1:6 0.01 0.09
20. Tax exempt body 0.1 0:100 0.10
Totals for top 20 31.6 7.23 24.37
Extrapolated to remaining shareholders 68.4 15.65 52.75
Totals for all shareholders 100 22.88 77.12

Shareholdings have been split between the entitled and not entitled categories in the proportions stated above. After this adjustment, the top 20 (31.6%) consists of 7.23% entitled to the inter-corporate dividend rebate under former section 46 or former section 46A of the ITAA 1936, and 24.37% not entitled to the rebate. The same proportions are applied to the remaining shareholders to get proportions of entitled (22.88%), and not entitled (77.12%). Unfranked dividends in this latter category are not counted in the tax deferral amount for over-depreciation under step 2F.

Example 4

Joining with retained profits but no step 3 amount using both methods

S Co is incorporated with contributed capital of $100,000 on 1 July 1998, and acquires various assets and operates a business. The company distributes all its retained profits in the each of the following years as franked and unfranked dividends, with the dividends franked to the extent of available franking credits. Unfranked dividends were rebatable to the shareholder under section 46 of Income Tax Assessment Act 1936 . S Co recognises deferred tax liabilities (DTL) in respect of its over-depreciated assets and no DTL is recognised in relation to the asset revaluation reserve created. On 2 July 2002, all of the shares in S Co are acquired by H Co, the head company of a consolidated group, for $112,040. S Co's financial position at the joining time is as follows:

Table 22: S Co - Statement of financial position at the joining time ($)
Cash   54,680 Contributed capital 100,000
Depreciating assets (DA) Asset revaluation reserve 10, 000
    Cost 12,000      
    Less Depreciation   3,200 8,800    
Other assets
(cost 40,000)
  50,000 Retained earnings 2,040
      Provision for tax 480
                  DTL           960
    113,480     113,480

The tax and accounting depreciation schedules, deferred tax liability, accounting profit and dividends paid out summaries at the joining time are provided in tables 28 to 32. For simplicity, any transactions of S Co that occurred on 1 July 2002 are ignored in this example.

Table 23: Calculation of entry ACA ($):
Entry ACA calculation
Step 1 - cost of membership interests 112,040
Step 2 - provision for tax 480  
- DTL after applying subsection 705-70(1A) 297* 777
Steps 3 to 7 N/A  
ACA 112,817
Tax cost setting amounts (TCSA)
Retained cost base assets - cash 54,680
Remainder to be allocated to reset cost base assets 58,137

*S Co is not a transitional entity, so subsection 705-70(1A) applies to the DTL. Its detailed calculation is not provided in this example. There are examples at CC2-4-242 detailing the application of subsection 705-70(1A) to DTLs.

Aggregate method in over-depreciation shortcuts

Table 24: Allocation of remainder of entry ACA to reset cost base assets ($)
Asset AV MV* TCSA 1 OD reduction** TCSA 2***
DA 1 800 2,400 2,373 451 1,922
DA 2 800 1,400 1,384 167 1,217
DA 3 2,400 3,200 3,164 219 2,945
DA 4 1,600 1,800 1,780 52 1,728
Other assets   50,000 49,436  
Total   58,800 58,137 889 7,812

*The market value in this example is the same as book value.

**The OD (over depreciation) reduction column is from the following table (table 25), step 1F.

*** The TCSA 2 column amounts are the results of TCSA 1 amounts minus OD reduction amounts for relevant assets. The TCSA 2 amounts are the final TCSAs for the relevant assets.

Note that $49,436 is the TCSA of Other assets.
Table 25: Calculation of over-depreciation reduction using aggregate shortcut method ($)
Step 1A Determine the potential for OD: Total BWDV 8,800  
      Less Total TWDV (AV) 5,600 3,200
Step 1B Step 1A x 70%   2,240
Step 1C Subtract 1B x a/(a+b+c) from Step 1B, where:
a = unfrankable retained profits
b = unfranked dividends paid post 30.6.87
c = transitional step 3 amount
2240 x 920*/(920+889+0) = 1,139
1,139 1,101
Step 1D Remove double counting for unused losses N/A 1,101
Step 1E Limit Step 1D result by sum of    
  (a) unfranked dividends 889  
  (b) transitional step 3 profits 0 889**
Step 1F: Estimate the over-depreciation reduction amount per asset
  Tax AV TCSA 1 Step up*** OD reduction TCSA 2
DA 1 800 2,373 1,573 451 1,922
DA 2 800 1,384 584 167 1,217
DA 3 2,400 3,164 764 219 2,945
DA 4&   nbsp;   1,600   1,780       180         52   1,728
Total       5,600   8,701   3,101       889   7,812

*This is the amount of unfrankable retained profits as at the joining time. Of the retained profits $2,040, the liability to pay tax of $480 would mean $920 would not be frankable, had $2,040 been distributed.

**This is the total OD reduction. In Step 1F, it is apportioned according to the step up amounts for the relevant assets to calculate the reduction for each asset. For example, OD reduction for DA 1 = 889 x 1,573/3,101.

***The step up column amounts are the differences between the TCSA 1 column and the Tax AV column.

Annual method in over-depreciation shortcuts

Table 26: Allocation of remainder of entry ACA to reset cost base assets ($)
Asset AV MV TCSA 1 OD reduction* TCSA 2**
DA 1 800 2,400 2,373 444 1,929
DA 2 800 1,400 1,384 167 1,217
DA 3 2,400 3,200 3,164 222 2,942
DA 4 1,600 1,800 1,780 56 1,724
Other assets 50,000 49,436
Total 58,800 58,137 889 7,182

*The figures in this column are from table 27, Step 2I.

**The TCSA 2 column amounts are the final TCSAs for the relevant assets.

Note that $49,436 is the TCSA of Other assets.
Table 27: Calculation of over-depreciation reduction using annual shortcut method ($)
Financial year ending 30.6.99 30.6.00 30.6.01 30.6.02 Total
Step 2A
Total book WDV 3,600 5,000 8,000 8,800  
Total tax WDV(AV) 3,200 4,000 6,000 5,600
Difference 400 1,000 2,000 3,200  
Incremental increase (result) 400 600 1,000 1,200  
Step 2B
Step 2A result x 70% 280 420 700 840  
Step 2C Reduce step 2B by step 2B x d/(d+e+f), where:
d = untaxed, unfrankable profits of the year still on hand
e = unfranked dividends paid from that year's profits
f = transitional step 3 profits from that year
Amount d 0 0 0 920  
Amount e* 256 219 414 0  
Amount f 0 0 0 0  
Sum of d+e+f 256 219 414 920  
Reduction 280 x 0/256 = 0 420 x 0/219 = 0 700 x 0/414 = 0 840 x 920/920 = 840  
Result after step 2C 280 420 700 0  
Step 2D to 2F N/A
Step 2G Total of years 280 420 700 0 1400
Step 2H Limit Step 2G result by sum of
  (a) unfranked dividends paid: 889    
  (b) transitional step 3 profits: 0   889**
Step 2I Tax AV Book WDV Excess of book over tax value OD reduction TCSA 1 TCSA 2***
DA 1 800 2,400 1,600 444 2,373 1,929
DA 2 800 1,400 600 167 1,384 1,217
DA 3 2,400 3,200 800 222 3,164 2,942
DA 4       1,600   1,800       200         56   1,780   1,724
Total     5,600   8,800   3,200       889   8,701   7,812

* These amounts are from table 32.

** This is the total OD reduction. In step 2I, it is apportioned according to the Excess of book over tax value column amounts for the relevant assets to calculate the reduction for each asset. For example, OD reduction for DA 2 = 889 x 600/3,200.

*** TCSA 2 column amounts are the results of TCSA 1 amounts minus OD reduction amounts.

Table 28: Taxation depreciation schedule - depreciating assets depreciated using prime cost method for income tax purposes, at 20% per annum ($)
  DA 1 DA 2 DA 3 DA 4 Totals
Financial year ending (Y/E) 30 June 1999
Cost 4,000        
Depreciation 800        
Ending AV 3,200       3,200
Y/E 30 June 2000
Cost or AV start 3,200 2,000      
Depreciation 800 400      
Ending AV 2,400 1,600     4,000
Y/E 30 June 2001
Cost or AV start 2,400 1,600 4,000    
Depreciation 800 400 800    
Ending AV 1,600 1,200 3,200   6,000
Y/E 30 June 2002
Cost or AV start 1,600 1,200 3,200 2,000  
Depreciation 800 400 800 400  
Ending AV 800 800 2,400 1,600 5,600
Table 29: Accounting depreciation schedule - depreciating assets depreciated using prime cost method for accounting purposes, at 10% per annum ($)
  DA 1 DA 2 DA 3 DA 4 Total
Y/E 30 June 1999
Cost 4,000        
Depreciation 400        
Ending book value 3,600       3,600
Y/E 30 June 2000
Cost or book at start 3,600 2,000      
Depreciation 400 200      
Ending book value 3,200 1,800     5,000
Y/E 30 June 2001
Cost or book at start 3,200 1,800 4,000    
Depreciation 400 200 400    
Ending book value 2,800 1,600 3,600   8,000
Y/E 30 June 2002
Cost or book at start 2,800 1,600 3,600 2,000  
Depreciation 400 200 400 200  
Ending book value 2,400 1,400 3,200 1,800 8,800
Table 30: Deferred tax liability summary ($)
Financial year ending 30.6.99 30.6.00 30.6.01 30.6.02
Book value at end 3,600 5,000 8,000 8,800
Tax AV at end 3,200 4,000 6,000 5,600
Book less tax value 400 1,000 2,000 3,200
Tax rate 36% 36% 34% 30%
DTL balance 144 360 680 960
Table 31: Accounting profits summary ($)
Financial year ending 30.6.99 30.6.00 30.6.01 30.6.02
Income 6,000 6,000 6,000 6,000
Expenditure items
Expenses 2,000 2,000 2,000 2,000
Depreciation 400 600 1,000 1,200
Provision for tax 1,152 1,008 680 480
DTL 144 216 320 280
Total 3,696 3,824 4,000 3,960
To retained earnings 2,304 2,176 2,000 2,040
Distributed Y/E 00 2,304 Distributed Y/E 01 2,176
Distributed Y/E 02 2,000
Balance 0 0 0 2,040
Table 32: Dividends paid out summary ($)
Financial year ending 30.6.99 30.6.00 30.6.01 Total
Paid franked 2,048 1,957 1,586 5,591
Paid unfranked 256 219 414 889
Total dividend 2,304 2,176 2,000 6,480

Note: In this example, it is assumed that S Co only pays final dividends.

References

Income Tax Assessment Act 1936 ,former sections 46 and 46A

Income Tax Assessment Act 1997 , section 40-85

Income Tax Assessment Act 1997 , sections 705-50 , 705-70 , 705-75 , 705-100 ; as amended by:

New Business Tax System (Consolidation) Act (No. 1) 2002 (No. 68 of 2002), Schedule 1
New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 (No. 90 of 2002), Schedule 2

Income Tax Assessment Act 1997 , section 705-80 ; as amended by New Business Tax System (Consolidation) Act (No. 1) 2002 (No. 68 of 2002), Schedule 1

Income Tax Assessment Act 1997 , Subdivision 126-B

Income Tax Assessment Act 1997 , subsection 705-90(10) ; as inserted by Tax Laws Amendment (2004 Measures No. 6) Act 2005 (No. 23 of 2005), Schedule 1, Part 7

Income Tax Assessment Act 1997 , section 705-50 and subsection 995-1(1) as amended by Tax Laws Amendment (2010 Measures No. 1) Act 2010 (No. 56 of 2010), Schedule 5, Part 6

Explanatory Memorandum to Tax Laws Amendment (2004 Measures No. 6) Bill 2004, paragraphs 1.135 - 1.148

Explanatory Memorandum to Tax Laws Amendment (2010 Measures No. 1) Bill 2010, paragraphs 5.180 - 5.186.

Taxation Determination TD 2004/4 - Income tax: Is a dividend paid before 1 July 1987 an unfranked dividend for the purposes of section 705-50 of the Income Tax Assessment Act 1997?

Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 (No. 101 of 2006), which repealed sections 46 and 46A of the Income Tax Assessment Act 1936

History

Revision History

Section C2-4-640 first published 28 May 2003.

Further revisions are described below.

Date Amendment Reason
10.12.04 Constraints on use of short cuts narrowed down so that the only depreciating assets excluded are grapevines and horticultural plants, p2 Provided under Commissioner's administrative powers.
Reference to new TD 2004/4, p. 6 Clarification
Note on use of step 2F by a public company not using either Aggregate or Annual method, p. 7. Clarification.
Notes on use of steps 1F and 2I where Law Administration Practice Statement PS LA 2004/12 is being applied in determining TCSAs for depreciating assets, pp. 5 and 8. Clarification.
26.10.05 New information on determining the extent to which dividends have been paid out of profits sheltered from income tax, p. 2, and change to worksheet 1, step 3, p. 10. Legislative amendments
15.11.06 Additional fourth example.

Corrections in Example 1 to the ACA calculation on the application of s. 705-80 and s.s. 705-70(1A). For simplicity, the capital contribution amount has been changed.
Minor number changes in tables 1, 3, 4, 6 and 19.
For clarification and to correct errors.
Updated references to inoperative provisions. Legislative amendment.
26.6.07 Note on proposed changes to clarify both the valuation of liabilities and the accounting principles to be used, and to the cost setting rules to phase out over-depreciation deductions, p. 28. Reflect announcement on 8 May 2007 by Assistant Treasurer in media release no. 50.
6.5.11

Removal of note on proposed changes to clarify both the valuation of liabilities and the accounting principles to be used.

Removal of note on proposed changes to the cost setting rules to phase out over-depreciation deductions.

Minor changes to reflect changed wording in former section 705-50.

Legislative amendments.

Current at 6 May 2011