Taxation Laws Amendment Bill (No. 4) 1994

Supplementary Explanatory Memorandum

Amendments and Requests for Amendment to be Moved on Behalf of the Government

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Imputation - Early payments of company tax for 1993-94

Explanation of the amendments

The following requests for amendment relate to Schedule 1 of the Bill.

Request for amendment 1

Subitem 86(1) of Schedule 1 to the Bill overcomes the anomaly that could otherwise arise when a company, during its 1993-94 income year, pays its tax for the year and also a franked dividend. In such a case the imputation credits attached to the dividends could exceed the company tax paid.

To prevent this anomaly, subitem 86(1) requires the franking credit arising from the tax payment to be reduced to match the imputation credits attached to the dividend. However, where the application of subitem 86(1) would result in a franking deficit at the end of a company's 1993-94 franking year, the alternative measure in subitem 86(2) will apply. That subitem provides for a class A franking debit, in lieu of the franking deficit, to arise at the date of commencement of the Bill so that there would be no potential retrospective application of the penalty provisions.

This alternative measure could in some situations result in the class A franking debit being less than intended. This would arise where, but for the Bill, a company would have a franking surplus at the end of its 1993-94 franking year and after applying the transitional provision in subitem 86(1) would have a franking deficit. In this case the alternative transitional measure in subitem 86(2) could have the effect that the franking surplus is carried forward to the 1994-95 franking year. The franking debit that arises under subitem 86(2) would therefore be offset by the amount of the carried forward franking surplus.

This amendment to subitem 86(2) prevents a company from carrying forward a franking surplus to its 1994-95 franking year in a situation where, if subitem 86(1) had applied to the company, it would have converted the surplus into a franking deficit. The amount that would have been the deficit if subitem 86(1) had been applied is posted as a Class A franking debit in the company's franking account on the date the Bill receives royal assent. [Subitem 86(2)]

Request for amendment 2

This amendment adds a definition of '1994-95 franking year'. [Subitem 86(3)]

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