Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 220 - Imputation for NZ resident companies and related companies  

Subdivision 220-C - Modifications of other Divisions of this Part  

Franking accounts of NZ franking company and some of its 100% subsidiaries

SECTION 220-300   NZ franking company ' s franking account affected by franking accounts of some of its 100% subsidiaries  

220-300(1)    
This section has effect if all these conditions are met in relation to a company (the franking donor company ) at a time:


(a) the franking donor company is at the time:


(i) an Australian resident or a *post-choice NZ franking company; and

(ii) a *100% subsidiary of a post-choice NZ franking company (the parent company ) that is not a 100% subsidiary of another company that is a member of the same *wholly-owned group as the parent company;


(b) the franking donor company is at the time a 100% subsidiary of a post-choice NZ franking company (the NZ recipient company ) in relation to which these requirements are met:


(i) there must be no companies that are *NZ residents and 100% subsidiaries of the NZ recipient company interposed between it and the franking donor company;

(ii) the NZ recipient company must be either the parent company or a 100% subsidiary of the parent company;


(c) there are interposed between the NZ recipient company and the franking donor company at the time one or more companies, each of which:


(i) is a 100% subsidiary of the NZ recipient company; and

(ii) is neither an Australian resident nor an NZ resident.


What is a post-choice NZ franking company ?

220-300(2)    
A company is a post-choice NZ franking company at a time if:


(a) at the time, the company is an *NZ franking company; and


(b) the notice constituting the *NZ franking choice that makes the company an NZ franking company at the time was given to the Commissioner at or before the time.

Franking donor company ' s franking surplus when conditions met

220-300(3)    
If the franking donor company ' s *franking account is in *surplus at the first time all the conditions in subsection (1) are met:


(a) a *franking debit equal to the surplus arises in the franking donor company ' s franking account immediately after that time; and


(b) a *franking credit equal to the surplus arises in the NZ recipient company ' s franking account immediately after that time.

Franking donor company ' s franking deficit when conditions met

220-300(4)    
If the franking donor company ' s *franking account is in *deficit at the first time all the conditions in subsection (1) are met, subsection 205-45(3) applies in relation to the franking donor company as if:


(a) it ceased to be a *franking entity at that time; and


(b) its franking account had been in deficit to the same extent immediately before that cessation.

Note:

Subsection 205-45(3) makes an entity liable to pay franking deficit tax if the entity ceases to be a franking entity and had a franking deficit immediately before ceasing to be a franking entity.



NZ recipient company ' s franking account after conditions are met

220-300(5)    
If, apart from paragraph (a), a *franking credit or *franking debit would arise in the franking donor company ' s *franking account at a time (the accounting time ) that is a time when all the conditions in subsection (1) are met but after the first time at which all those conditions are met in relation to the franking donor company:


(a) the credit or debit does not arise in the franking donor company ' s franking account; and


(b) a credit or debit of the same amount arises at the accounting time in the NZ recipient company ' s franking account instead.

220-300(6)    
However, subsection (5) does not apply in relation to:


(a) a *franking debit arising in the franking donor company ' s *franking account under subsection (3); or


(b) a *franking credit arising in that account because of item 5 of the table in section 205-15 in conjunction with subsection (4) of this section; or


(c) a franking debit arising in that account under paragraph 220-605(3)(a) .

Note 1:

Item 5 of the table in section 205-15 gives rise to a franking credit immediately after a liability to franking deficit tax arises. Subsection (4) of this section causes such a liability to arise under section 205-45 .

Note 2:

Paragraph 220-605(3)(a) gives rise to a franking debit if the NZ franking choice of a company that is a former exempting entity is revoked or cancelled and the company ' s exempting account is in deficit immediately before the revocation or cancellation.



Franking donor company ' s benchmark franking percentage

220-300(7)    
Subsection (5) does not affect the franking donor company ' s *benchmark franking percentage.

Special rules if franking donor company is former exempting entity

220-300(8)    
If the franking donor company becomes a *former exempting entity at the first time all the conditions in subsection (1) are met:


(a) subsections (3) and (4) do not apply; and


(b) subsection (5) does not apply in relation to:


(i) a *franking credit arising in the franking donor company ' s *franking account under item 1 of the table in section 208-130 immediately after that time; or

(ii) a *franking debit arising in the franking donor company ' s franking account under item 1 of the table in section 208-145 immediately after that time.
Note:

Subsection (8) ensures that the franking donor company ' s franking account has a nil balance immediately after the company becomes a former exempting entity and that there is an appropriate balance in the company ' s exempting account that is not made available for use by the NZ recipient company in franking distributions.



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