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House of Representatives

Taxation Laws Amendment (Company Distributions) Bill 1987

Taxation Laws Amendment (Company Distributions) Act 1987

Income Tax (Franking Deficit) Bill 1987

Income Tax (Franking Deficit) Act 1987

Income Tax Rates Amendment Bill 1987

Income Tax Rates Amendment Act 1987

Explanatory Memorandum PART B

(Circulated by authority of the Treasurer, the Hon. P.J. Keating M.P.)

FOREWORD

Part A of this Explanatory Memorandum, which contains an outline and broad explanation of the measures in the Taxation Laws Amendment (Company Distributions) Bill 1987, the Income Tax (Franking Deficit) Bill 1987 and the Income Tax Rates Amendment Bill 1987, was circulated on introduction of the Bills into the House of Representatives.

This Part - Part B - contains a clause by clause explanation of the Bills.

NOTES ON CLAUSES

TAXATION LAWS AMENDMENT (COMPANY DISTRIBUTIONS) BILL 1987

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the amending Act to be cited as the Taxation Laws Amendment (Company Distributions) Act 1987.

Clause 2: Commencement

Under subclause 2(1), but subject to subclause 2(2), the amending Act is to come into operation on the day on which it receives the Royal Assent. But for subclause (2), the amending Act would, by reason of subsection 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

As the imputation system will apply to dividends paid on or after 1 July 1987, it is most desirable that the legislative base for the system be put in place promptly for the information of companies and shareholders, and others affected by it.

Clause 6 of this Bill will amend a new section - section 46C - that is proposed to be inserted in the Income Tax Assessment Act 1936 by the Taxation Laws Amendment Act 1987 (which was introduced into the House of Representatives on 28 November 1986 as the Taxation Laws Amendment Bill (No.5) 1986). By subclause 2(2) clause 6 of this Act will come into operation on the date of commencement of the Taxation Laws Amendment Act 1987, if that Act has not commenced before the day on which this Act receives the Royal Assent. Clause 6 will amend proposed new section 46C which is to be inserted in the Income Tax Assessment Act 1936 by a provision contained in the Bill referred to.

PART II - AMENDMENT OF THE CRIMES (TAXATION OFFENCES) ACT 1980

Clause 3: Principal Act

This clause facilitates reference to the Act being amended by Part II of the Bill - the Crimes (Taxation Offences) Act 1980 - which, in Part II is referred to as "the Principal Act".

Clause 4: Interpretation

The Crimes (Taxation Offences) Act came into operation on 4 December 1980 and contains criminal sanctions against persons who engage in transactions designed to ensure that a company or trust is rendered incapable of paying income tax, sales tax or fringe benefits tax.

Under the imputation arrangements contained in new Part IIIAA to be inserted in the Income Tax Assessment Act 1936 by clause 14 of this Bill (see later notes on that clause), a company may become liable to pay an amount of tax - called franking deficit tax - or penalties by way of additional tax, in certain circumstances. Clause 4 of the Bill will amend the Crimes (Taxation Offences) Act to bring these amounts within its scope. This will mean that it will be an offence for anyone to enter into an arrangement with a purpose of securing that a company will be, or will be likely to be, unable to pay tax or additional tax which is payable under the proposed Part IIIAA, or which will become or may reasonably be expected to become payable in the future under that Part.

PART III - AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1936

Clause 5: Principal Act

This clause facilitates reference in Part III of the Bill to the Income Tax Assessment Act 1936 which is the Act being amended by this Part. In this Part and in the notes that follow, that Act is referred to as "the Principal Act".

Clause 6: Dividends paid instead of interest under certain short-term finance arrangements

The amendment made by this clause, together with the further amendments proposed in clauses 7, 9 and 10 of the Bill, will deny the intercorporate dividend rebate on dividends that are in effect paid in substitution for payments of interest under certain finance arrangements. Amendments contained in the Taxation Laws Amendment Bill (No.5) 1986, which was introduced into the House of Representatives on 28 November 1986, propose to insert a new section - section 46C - in the Principal Act which will deny eligibility for the intercorporate dividend rebate under sections 46 and 46A of that Act where a dividend is paid under a short-term financing arrangement for an effective term to maturity of 2 years or less. Generally, such dividends will be deductible to the company that issued the relevant shares by virtue of new section 67AA that is also proposed to be inserted in the Principal Act by the Taxation Laws Amendment Bill (No. 5) 1986.

Clause 7 of the Bill proposes the insertion of a further section - section 46D - in the Principal Act which will be to the same broad effect as proposed section 46C. However, unlike that section, section 46D will apply to dividends paid under a financing arrangement irrespective of its term if, on consideration of all relevant matters, the payment of dividends may reasonably be regarded as being in substitution for the payment of interest on a loan. Dividends to which this new measure applies will not be tax deductible to the issuer.

Clause 6 will therefore amend proposed section 46C to ensure that, where the conditions for the application of new section 46D to a dividend exist, it is that section and not section 46C that is to apply to the dividend. This will be achieved by excluding from the definition of "debt dividend" in proposed section 46C, any dividend to which new section 46D as proposed by clause 7 of this Bill applies. The practical effect of this is that proposed section 46C, and therefore section 67AA, will not apply to any dividends paid on shares issued after 1.00pm on 10 December 1986 as part of a short-term financing arrangement whenever entered into, or used in such an arrangement entered into or extended after that time.

As mentioned in the earlier notes on clause 2 of the Bill, the amendments proposed by this clause will not come into operation until the proposed new section 46C has come into effect, if that occurs after this Bill receives the Royal Assent.

Clause 7: Dividends paid instead of interest

The amendments proposed by clause 7 will insert a new section - section 46D - in the Principal Act. This section, in conjunction with the amendments proposed by clauses 6, 9 and 10 of the Bill, will give effect to the measures announced on 10 December 1986 to deny the intercorporate dividend rebate on certain dividends paid, in effect, in substitution for payments of interest under financing arrangements.

Under the present income tax law, section 46 effectively frees from tax dividends that are included in the taxable income of a resident company. Where dividend stripping is involved, section 46A operates to limit the rebate of tax that a company otherwise may be allowed under section 46. As indicated in the notes on clause 6, new section 46C - which is proposed to be inserted in the Principal Act by the Taxation Laws Amendment Bill (No.5) 1986 that was introduced into the House of Representatives on 28 November 1986 - will operate to deny the intercorporate dividend rebate where a dividend is paid, rather than interest on a loan, under a short-term finance arrangement involving the provision of finance for a period of two years or less. As also noted earlier, such dividends will generally be deductible to the company that issued the relevant shares.

The amendment proposed by this clause will operate to the same broad effect as those described above by denying the intercorporate dividend rebate in relation to a dividend the payment of which may reasonably be regarded as equivalent to the payment of interest on a loan. However, new section 46D will apply regardless of the term of the loan or finance in connection with which the dividend is paid, and no deduction for the dividend will be allowed to the company that issued the relevant shares. As indicated in the notes on clause 6, the amendment proposed by that clause will ensure that dividends that fall within the scope of section 46D will be excluded from the operation of the proposed section 46C so as not to qualify for deduction under the proposed section 67AA.

Subsection 46D(1) defines the terms that are used in new section 46D. Unless the contrary intention appears, the terms are to have their defined meanings as described below:

"arrangement" is defined in the same way as in several other anti-avoidance provisions of the income tax law. The term is to mean any formal or informal agreement, arrangement or understanding, whether or not enforceable, or intended to be enforceable, by legal proceedings, and applies to express or implied arrangements;
"associate" for the purpose of these provisions is to have the same meaning as that term has in section 26AAB of the Principal Act. In that section, the term is defined in a wide manner to include relatives, partners, directors, trustees and beneficiaries;
"commencing time" means 1.00 o'clock in the afternoon, by legal time in the Australian Capital Territory, on 10 December 1986 which, on that day, was 1.00pm Australian Eastern Summer Time;
"finance" is to include money raised by the issue of shares. This definition is designed to ensure that the meaning of the word "finance" in the definition of "finance arrangement" (see notes below) is not confined to conventional borrowings with interest.
"finance arrangement" is a term used in subsection 46D(2) in conjunction with the term "commencing time" to ensure that the new measures will apply to dividends that are paid under finance arrangements to which the new section applies. It includes arrangements where only one party to the arrangement had as one of its purposes the obtaining of finance for a company, and situations where a company pays dividends on shares so that an associate of that company obtains finance.
Under paragraph (a) of the definition, a finance arrangement, in relation to a company, means an arrangement (as defined) entered into or carried out by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the company, or an associate (as defined) of the company, to obtain finance (including by renewal of an earlier arrangement). Whether one of the purposes of any particular arrangement was to enable the company to obtain finance is a decision that must be made objectively in each case, taking into account the surrounding circumstances. For example, a share that is redeemable would inevitably fall within the definition of a finance arrangement. On the other hand, a share not on the face of it redeemable would not generally come within the scope of the provisions, unless circumstances exist to indicate that the share is to be, or is likely to be, effectively redeemed or extinguished in the future.
Paragraph (b) of the definition is a safeguarding measure to ensure that the new section is not circumvented where a finance arrangement in force before or after the commencing time is extended so as to become a new finance arrangement made after that time.
"loan" is defined in a manner that makes it clear that the term is not confined to amounts of borrowings actually advanced to the borrower, but includes the provision of credit or any other form of financial accommodation.
"unfranked part" is defined in relation to a dividend to mean the amount of that dividend that has not been franked. The "franked amount" of a dividend is a defined term and a central feature of the imputation arrangements contained in new Part IIIAA which is proposed to be inserted in the Principal Act by clause 14 of this Bill - see later notes on that clause. In broad terms, it is the amount of a dividend that a company has declared (pursuant to the new section 160AQF) to be franked, by reference to the amount of income tax borne at the company level, that is to be imputed to the shareholder. The definition makes it clear that a dividend can have an unfranked part, even if it is not a "frankable dividend" (another term defined in that Part to mean a dividend that can be franked under the proposed imputation arrangements).

Subsection 46D(2) effectively defines the term "debt dividend" which is central to the application of the section, as it is only a debt dividend as defined that will be ineligible for the intercorporate dividend rebate. For these purposes, a dividend is a debt dividend only if the conditions specified in paragraphs (a), (b) and (c) of the subsection are satisfied.

Paragraph (a) sets the basic condition that, for a dividend to be a debt dividend, it must be paid to a shareholder after the "commencing time" (a defined term - see earlier notes) in respect of a share in either a resident or a non-resident company. The reference to a dividend paid by a non-resident company embraces such dividends derived by Australian resident companies up to the end of their 1986-87 income year. After that time, all dividends derived by Australian resident companies from non-resident companies will cease to be eligible for the intercorporate dividend rebate, and will become subject to the recently enacted foreign tax credit provisions of the Principal Act.

Paragraph (b) of the subsection will give effect to one of the terms of the 10 December 1986 announcement namely that the new measures would operate in relation to dividends paid on shares issued, or used in financing arrangements entered into, after the time of the announcement. A dividend will satisfy paragraph (b) if it is paid in either of the following circumstances:

the dividend is paid in respect of a share issued after the commencing time (subparagraph (i)). Note that the word "issued" is not defined in new section 46D. It is to have its usual meaning in relation to share transactions which implies action, as distinct from the act of allotment, whereby the allottee's title to the share becomes complete, e.g., by the allottee being included on the register of shareholders or by receipt of a share certificate (per Dixon J., Central Piggery Co. Ltd. v McNicoll and Hurst (1949) 78 CLR 594 at pp. 599, 600); or
the dividend is paid under a "finance arrangement" (as defined - see earlier notes) entered into after the commencing time (subparagraph (ii)). This will ensure that the operation of the new measure cannot be avoided by using shares that were issued before the commencing time to obtain finance under a finance arrangement entered into after that time, or to renew or extend an existing finance arrangement, instead of making a new issue of shares to which subparagraph (i) would apply.

Paragraph (c) is central to the application of section 46D. It is to the effect that, where paragraphs (a) and (b) are satisfied, a dividend will be a debt dividend for the purposes of the section if, having regard to the matters set out in paragraph (c), the payment of the dividend may reasonably be regarded as equivalent to the payment of interest on a loan. The matters adverted to are -

by subparagraph (i) - the manner in which the amount of a dividend in respect of the affected share is to be calculated. In general terms, this requirement will be met in relation to any share that provides a return at a specified or determinable rate;
by subparagraph (ii) - the conditions applicable to the payment of dividends. The conditions to be considered would include any providing a preferential return to the shareholder, or relating to any arrangements collateral to the issue of relevant shares. For example, where payment of a dividend on a share is conditional on collateral borrowings, the terms of such arrangements would be relevant for the purpose of determining whether the dividend paid constitutes a debt dividend under new section 46D. Other matters that would be relevant factors applicable to the payment of any dividend would include the terms of any financial arrangement to the effect that funds raised by the issue of shares were to be repaid to the lender at some time in the future (whether by the company redeeming the shares directly, or indirectly through the purchase of those shares by an associate); and
by subparagraph (iii) - such other matters as are relevant to the payment of dividends on the particular shares.

Subsection 46D(3) is the operative provision that will as appropriate deny a shareholder a rebate of tax under section 46 or section 46A in respect of;

a debt dividend (determined under subsection (2)) paid after the commencing time and before 1 July 1987 (paragraph (a)); or
the unfranked part (see earlier notes) of a debt dividend paid on or after 1 July 1987 (paragraph (b)).

Clause 8: Distributions by liquidator

Subsection 47(1) of the Principal Act deems distributions to shareholders of a company by a liquidator in the course of winding up the company to be dividends paid to the shareholders out of profits to the extent to which they represent income derived by the company. For these purposes, income has its ordinary meaning and does not include amounts - such as certain capital profits - that are specifically included in assessable income of a taxpayer by various provisions of the income tax law.

Clause 8 proposes to insert a new subsection - subsection (1A) - in section 47 of the Principal Act to extend the meaning of the phrase "income derived by the company" for the purposes of subsection (1). By this extension, liquidator's distributions out of realised capital gains on taxable assets acquired after 19 September 1985, and out of all amounts (other than the assessable portion of such gains) which are assessable income of a company under the income tax law, are deemed to be dividends paid to shareholders out of profits of a company. Such distributions will be dealt with in accordance with the new imputation arrangements discussed later in the notes on clause 14 of the Bill.

By paragraph (a) of new subsection (1A), the reference in existing subsection 47(1) to income derived by a company is to be read as including a reference to any amount included in the assessable income of the company other than an amount that is included under section 160ZO of the Principal Act. That section requires a net capital gain realised by a taxpayer in any year to be included in the taxpayer's assessable income of that year. With that exception, a distribution to a shareholder by a liquidator in the course of winding up a company, to the extent it represents other amounts included in the company's assessable income, will be deemed to be a dividend paid to the shareholder by the company out of profits derived by it and thus prima facie subject to tax in the shareholder's hands.

Paragraph (b) will also modify the reference in subsection 47(1) of the Principal Act to income derived by a company to include a reference to an amount that would be included in the assessable income of the company under section 160ZO of the Principal Act if, for the purpose of determining under Part IIIA of that Act whether a net capital gain accrued to a taxpayer during the year of income:

a reference to the indexed cost base of an asset were read as a reference to the cost base of the asset (subparagraph (i));
section 160ZC, which contains rules for determining whether a net capital gain accrued to a taxpayer in respect of a year of income, had not been enacted (subparagraph (ii)); and
a net capital gain were taken to have accrued to a taxpayer in respect of a year of income if a capital gain or capital gains accrued to a taxpayer during the year of income, and the amount of the net capital gain were taken to be the amount of the capital gain or the sum of the capital gains accrued during the year of income (subparagraph (iii)).

Taken together, these tests will ensure that a distribution to a shareholder by a liquidator in the course of winding up a company is also deemed to be a dividend paid to the shareholder by the company out of profits derived by it to the extent that the distribution is made out of an actual gain on disposal of a taxable asset to which Part IIIA of the Principal Act has application.

By subclause 18(2) of the Bill, the amendment proposed by clause 8 will not apply to distributions made by a liquidator during the winding up of a company where the winding up commenced before lpm, Australian Eastern Summer Time (AEST), on 10 December 1986, i.e., where an application for the winding up of the company was lodged with the Court, or a special resolution for voluntary winding up was passed by the company in general meeting, before that time.

Subsection 47(2A) applies where the business of a company is wound up otherwise than in the course of a formal liquidation and, in connection with the winding up of the business, assets of the company are distributed to shareholders otherwise than by the company. If any assets so distributed are not otherwise dividends for the purposes of the Principal Act, that is dividends as defined in subsection 6(1) of that Act, subsection (2A) operates so that the distribution is treated for the purposes of section 47 as if it had been made by a liquidator in the course of winding up the company. Subclause 18(3) of the Bill will operate to bring within the scope of the changes proposed by clause 8 any distribution to which subsection 47(2A) of the Principal Act applies that is made after 1.00pm AEST on 10 December 1986.

Clauses 9 and 10: Modified application of Act in relation to certain unit trusts

The measures proposed by clause 7 of the Bill in relation to the income tax treatment of debt dividends paid on shares used in certain finance arrangements (see earlier notes on that clause), will also apply to trustees of corporate unit trusts and public trading trusts that, in accordance with Divisions 6B and 6C respectively of Part III of the Principal Act, are treated as companies for income tax purposes.

Section 102L of the Principal Act modifies the application of several provisions of that Act to treat a corporate unit trust as a company and its distributions as dividends. Clause 9 will amend subsection 102L(2) to extend the mutatis mutandis application of sections 46, 46A and 46B of the Principal Act in relation to trustees of corporate unit trusts to include the proposed new section 46D. (An identical amendment to subsection 102L(2) is proposed by the Taxation Laws Amendment Bill (No. 5) 1986 to include a reference to new section 46C - see earlier notes on clauses 6 and 7.) By this amendment, debt dividends, as defined in the new section 46D, paid to trustees of corporate unit trusts will not qualify for a rebate of tax, and unit trust dividends paid by such trustees will also be ineligible for a rebate of tax in the hands of unit holders if the payment of those unit trust dividends may reasonably be regarded as the payment of interest on a loan.

Section 102T of the Principal Act relates to trustees of public trading trusts that are taxed as companies under the income tax law and mirrors the provisions of section 102L of that Act discussed above. Clause 10 will amend section 102T in a manner corresponding to the amendments to section 102L proposed by clause 9 (and by the Taxation Laws Amendment Bill (No. 5) 1986) explained in preceding paragraphs.

Clause 11: Liability to withholding tax

Clause 12: Certain income not to be included in assessable income

Section 128B of the Principal Act imposes liability to withholding tax on non-residents who derive, inter alia, dividends paid by Australian resident companies. This liability applies whether the dividends are received directly by the non-resident, or indirectly through a nominee or trustee. Withholding tax is imposed at a flat rate of 30 per cent, but where dividends are derived by residents of countries with which Australia has a comprehensive taxation agreement or residents of Papua New Guinea, the rate of tax is 15 per cent. The withholding tax is a final tax and applies whether or not the non-resident has other income subject to Australian tax. To that end, section 128D of the Principal Act excludes from the Australian assessable income of a non-resident, dividends on which withholding tax is payable.

Withholding tax does not apply to dividends paid by resident companies to a non-resident who carries on business in Australia at or through a permanent establishment (branch) of the non-resident in Australia. In such cases, the dividends are exempt from withholding tax and are treated as assessable income of the non-resident subject to tax by the normal assessment procedures of the Principal Act.

Associated with the introduction of the new imputation arrangements, these rules are to be changed in relation to dividends paid by resident companies on and after 1 July 1987 to non-residents. First, the present assessment basis of taxing dividends received by a non-resident who carries on business in Australia through a branch here will be terminated by formally removing their present exemption from withholding tax. Secondly, dividends paid on or after 1 July 1987 to all non-residents, i.e., including those previously taxed on an assessment basis, are to be exempted from withholding tax to the extent to which the dividends have been franked under the imputation arrangements contained in new Part IIIAA that is proposed to be inserted in the Principal Act by clause 14 of the Bill - see later notes on that clause.

Paragraph (a) of clause 11 will amend section 128B of the Principal Act by removing the exclusion from liability to withholding tax of income that consists of dividends that are derived by non-residents who carry on business in Australia at or through a permanent establishment of the non-resident in Australia. By this means, all dividends paid to non-residents who have a permanent establishment in Australia will be brought within the withholding tax regime and, subject to the amendment proposed by paragraph (b), will be exposed to withholding tax rather than tax by assessment.

The amendment proposed by paragraph (b) of clause 11 will insert a new paragraph - paragraph (ga) - in subsection 128B(3) of the Principal Act. This paragraph will have the effect of exempting from withholding tax the part of any dividend paid on or after 1 July 1987 by an Australian resident company which has been franked under the provisions of the proposed new Part IIIAA. To the extent that a dividend paid on and after that date to any non-resident is not franked, the withholding tax will remain effective.

By virtue of subclause 18(4) of the Bill, the amendments to be made by clause 11 will apply to dividends paid on and after 1 July 1987.

As indicated above, section 128D of the Principal Act excludes from the assessable income of a person income which is subject to withholding tax. It also excludes from assessable income any income that would be subject to withholding tax, but for specific exemptions from liability to that tax contained in subsection 128B(3) and certain other sections of the Principal Act.

Clause 12 will amend section 128D to include a reference to new paragraph (ga) that is to be inserted in section 128B by paragraph (b) of clause 11. This will have the effect of excluding from the assessable income of a person income consisting of the franked amount of dividends paid on or after 1 July 1987 by Australian resident companies which is also to be exempted from liability to withholding tax.

Clause 13: Repeal of Division 11B of Part III

Division 11B of Part III of the Principal Act imposes liability on a non-resident company that derives income from Australian sources to pay an additional tax that has become known as the "branch profits tax". Its purpose is to remove a discrimination that would otherwise exist in favour of a non-resident company conducting business through a permanent establishment (branch) in Australia, rather than conducting it through a resident subsidiary the dividends paid by which to its parent are subject to withholding tax. Liability to the branch profits tax does not depend on the non-resident company having a branch in Australia - the tax applies to all income of a non-resident company which has an Australian source and is levied at the rate of 5 per cent on the "reduced taxable income". Broadly, this is the Australian taxable income reduced by dividends and other specific items of income that are subject to special taxing rules under the Principal Act.

As a consequence of the introduction of the imputation system and the proposed exemption from withholding tax of the franked amount of dividends paid to non-residents on or after 1 July 1987 by Australian resident companies, the branch profits tax is to be abolished. Clause 13 therefore proposes the repeal of Division 11B of Part III.

By subclause 18(5) of the Bill the repeal is to apply in relation to income of the year of income that commenced on 1 July 1986 and of all subsequent income years. The branch profits tax will thus last apply to income of the 1985-86 year of income.

Clause 14: Franking of dividends

Introductory note

Clause 14 proposes the insertion in the Principal Act of a new Part - PART IIIAA - FRANKING OF DIVIDENDS - which will establish the framework for the imputation system that was announced on 10 December 1986.

A comprehensive outline of the new system is contained under the heading "main features" in Part A of this memorandum. For ease of reference, a brief outline of the structure of the new Part IIIAA is given below to assist understanding of the subsequent explanation of each proposed section of the new Part.

Division 1 (Sections 160APA-APH): Defines terms used in Part IIIAA and contains other drafting aids.
Division 2 (Sections 160APJ-AQC): Contains the basic rules for establishing the extent to which dividends paid on and after 1 July 1987 by Australian resident companies are able to be franked.
Division 3 (Section 160AQD): Provides the mechanism for a company to estimate a future reduction in tax that will affect its ability to frank dividends paid before the time of the reduction.
Division 4 (Section 160AQE): Contains the rules that establish the minimum extent to which a dividend is to be franked.
Division 5 (Sections 160AQF-AQS): Establishes the statutory means by which dividends are to be franked, and creates a liability to, and permits the offset against company tax of, franking deficit tax.
Division 6 (Sections 160AQT-AQU): Provides for imputation credits to be included in the assessable income of resident individual shareholders, and for the allowance of a rebate of tax in relation to those amounts.
Division 7 (Sections 160AQV-ARD): Contains rules for the flow-through to partners, beneficiaries and trustees of imputation credits attached to franked dividends received by partnerships and trusts.
Division 8 (Sections 160ARE-ARS): Provides for the lodgment of an annual reconciliation of a company's franking account, and the assessment of franking deficit tax or franking additional tax.
Division 9 (Section 160ART): Extends the application of relevant provisions of the Principal Act to determinations and assessments made under Part IIIAA.
Division 10 (Sections 160ARU-ARW): Provides for the collection and recovery of franking deficit tax and additional tax.
Division 11 (Sections 160ARX-ASB): Provides for the assessment of additional tax by way of penalty, and for its remission in appropriate cases, where breaches of Part IIIAA occur.
Division 12 (Sections 160ASC-ASE): Extends to Part IIIAA relevant provisions of the Principal Act relating to the keeping of records and the obtaining of information.

Notes on the proposed provisions of the new Part IIIAA being inserted by clause 14 follow.

Division 1 - Interpretation

Division 1 of the new Part IIIAA contains a number of definitions and other provisions to assist in the interpretation of the new Part.

Section 160APA: Interpretation

Section 160APA defines the following terms, each of which is to have the given meaning unless the contrary intention appears. Apart from certain expressions that are self-explanatory, these are:

"adjusted amount" is a term used elsewhere in Part IIIAA to determine the amount of certain credits and debits to establish a company's franking account balance. This account will be maintained by reference to the amount of income that a company has available to distribute as franked dividends. It is therefore necessary to provide a mechanism to convert an amount of a company tax instalment paid or offset, an amount of company tax assessed, a foreign tax credit or a franking deficit tax offset that will give rise to a franking credit or a franking debit into an amount that is equal to an amount of income that corresponds to the tax concerned - in this definition called the "basic amount". The amount so determined is referred to as the "adjusted amount". For example, with a company tax rate of 49 per cent (the "applicable general company tax rate" - a defined term discussed below), payment of a company tax instalment of $490 would be converted to a franking credit of an adjusted amount of $510 by the formula contained in this definition, viz. -

$490 * (51)/(49) = $510

"applicable general company tax rate" is a term used in Part IIIAA in connection with "adjusted amount" and "general company tax rate" to specify the company tax rate imposed for a financial year that will be used to:

-
convert a "basic amount" to an amount of a franking credit or franking debit as outlined above;
-
convert a "franking deficit" to an amount of "franking deficit tax" (also defined terms - see notes later); and
-
calculate an extra amount to be included in assessable income when a franked dividend is paid, and in relation to which a rebate of tax will be available to certain shareholders.

Subparagraph (a)(i) of the definition deals with franking credits and franking debits arising as a result of the payment of company tax instalments for a year of income. Franking credits and franking debits in relation to company tax instalments paid or applied against tax due arise, respectively, under the proposed new sections 160APM and 160APY which are discussed later. The applicable general company tax rate used to convert the amount of a company tax instalment for a year of income to a franking credit or franking debit is the general company tax rate for the year of tax to which the year of income relates. In the first year of imputation, most companies will pay company tax for their year of income ending on 30 June 1987 by instalments due on 15 August 1987, 15 November 1987 and 15 February 1988.
The year of tax to which the 1986-87 year of income relates is the financial year commencing on 1 July 1987. Under the amendments proposed by clause 4 of the Income Tax Rates Amendment Bill 1987, the rate of tax payable by companies for the financial year commencing on 1 July 1987 is to be 49 per cent. It is this rate, therefore, that is the applicable general company tax rate in relation to company tax instalments paid for the 1986-87 year of income of companies.
Subparagraph (a)(ii) of the definition deals with franking credits and franking debits arising as a result of an assessment or amended assessment of company tax payable for a year of income. Franking credits and franking debits in relation to company tax assessments and amended assessments arise under the proposed new sections 160APN, 160APR and 160APZ also discussed later. The applicable general company tax rate to convert the relevant amount of company tax for a year of income to a franking credit or franking debit is the general company tax rate for the year of tax to which the year of income relates. For the 1986-87 year of income the applicable rate is 49 per cent (see above notes on subparagraph (i)).
Subparagraph (a)(iii) of the definition covers franking credits and debits attributable to a foreign tax credit (also a defined term - see later notes) allowable in respect of tax paid or payable by a company in respect of income derived in a year of income. Franking credits and franking debits in relation to foreign tax credits allowable arise, respectively, under the proposed new sections 160APT and 160AQA - see later notes on those sections. The applicable general company tax rate to convert the relevant amount of foreign tax credit in respect of income derived in a year of income is the general company tax rate for the year of tax to which the year of income relates. Pursuant to Division 18 of Part III of the Principal Act, a resident company is entitled to a foreign tax credit where the assessable income of a year of income of the company includes foreign income, and foreign tax on that income has been paid for which the company was personally liable (or was deemed to be personally liable by subsections 6AB(5) or (6) of the Principal Act). For foreign income derived in the 1986-87 year of income of a company, the applicable general company tax rate in relation to any foreign tax credit allowable is the general company tax rate for the financial year commencing on 1 July 1987 (i.e., 49 per cent - see notes on subparagraph (a)(i)).
Subparagraph (b)(i) of the definition of "applicable general company tax rate", deals with franking debits arising as a result of the liability of a company to pay "franking deficit tax" for a "franking year" (both defined terms discussed later). Franking deficit tax is to be payable under proposed new section 160AQJ (also discussed later) if a company has a franking deficit at the end of a franking year. For companies (other than a company which is an early balancing company for the purposes of subsection 221AB(1) of the Principal Act) the franking year will be the financial year, i.e., 1 July to 30 June. For early balancing companies the franking year is the year that corresponds to their "substituted instalment period" (established under subsection 221AB(1) of the Principal Act). The applicable general company tax rate that is used to convert a franking deficit for a franking year to a franking deficit tax liability is, with the exception of early balancing companies, the general company tax rate for the financial year that corresponds to that franking year. For an early balancing company, the applicable general company tax rate is the general company tax rate for the financial year during which the company's franking year ends. For example, for a company with a substituted accounting period of 1 January to 31 December, the applicable general company tax rate in relation to the franking year ending on 31 December 1987, will be the general company tax rate for the financial year 1 July 1987 to 30 June 1988.
Subparagraph (b)(ii) of the definition covers franking debits or credits due to an "offset" (another defined term discussed later) against company tax. Under proposed new section 160AQK (see later notes), a company that has become liable to franking deficit tax for a franking year may offset the franking deficit tax payable against company tax that is assessed on income of the 1986-87 or any later income year after the end of that franking year. Such an offset (or an amendment of an offset previously allowed) gives rise to a franking debit under proposed new section 160AQ (or a franking credit under proposed new section 160APS in the case of a reduction in the amount allowed). The applicable general company tax rate used to convert the relevant amount of the offset to a franking debit or franking credit is the general company tax rate applied under subparagraph (b)(i) in relation to the franking deficit tax liability that has been offset.
Subparagraph (c)(i) of the definition of applicable general company tax rate specifies the general company tax rate to be used in relation to the payment of a franked dividend during a financial year. Under the proposed new section 160AQT which is discussed later, resident individual shareholders will be required to include an extra amount as assessable income for the year of income during which a franked dividend is derived. Partnerships and trustees will also be required to include such an amount. In general terms this extra amount represents the imputation credit in relation to the franked dividend. The extra amount to be so included is calculated by reference to the general company tax rate applicable to the financial year during which the dividend is paid. For example, for a dividend that is paid in the period between 1 July 1987 and 30 June 1988 and is fully franked the extra amount to be included in the assessable income of the shareholder will be calculated by using the 49 per cent company tax rate applicable for that financial year.
Subparagraph (c)(ii) sets the general company tax rate applicable in the case of a franked dividend that has been paid to a partnership or trust during a financial year. Under proposed new section 160APQ, a franking credit arises where a company partner or beneficiary that is assessed in relation to a share of the net income of a partnership or trust (or is allowed a deduction for a share of a partnership loss) and part of that share is attributable either directly or indirectly to a franked dividend. This franking credit is to be determined by reference to an amount called the "potential rebate amount" (a term defined in proposed new section 160APA) that, in broad terms, represents the partner's or beneficiary's share of the imputation credit included in the assessable income of a partnership or trust. This amount is converted to a franking credit using the general company tax rate for the financial year during which the franked dividend was paid.
"committed future dividends", is a term used for the purpose of determining the required franking amount in relation to a dividend in certain cases under proposed section 160AQE. Two basic types of dividends are encompassed by the definition. By paragraph (a), a dividend is a committed future dividend at a particular time if it is a frankable dividend (also defined) and -

the amount of the dividends is fixed (subparagraph (i));
the rights of the shareholders to be paid the dividends are set out in the company's Memorandum or Articles of Association. In general, this requirement will be satisfied if the share is a preference share under section 128 of the Companies Code (subparagraph (ii)); and
the dividends are to be paid after that time and before the end of the franking year (subparagraph (iii)).

By using the expression "are to be paid" rather than "payable ", paragraph (a) extends to dividends which, although they are not payable in the strict sense at a particular time and might not in fact become payable (e . g ., because the company does not have sufficient profits), will become payable if the conditions necessary for that to happen are satisfied. Thus, if fixed rate dividends on preference shares will become payable after a particular time and before the end of a franking year if the directors of the company resolve to pay the dividends (or if there are sufficient profits), the dividends will be treated as committed future dividends at that time.
Paragraph (b) of the definition operates to treat as a committed future dividend at a particular time any dividend which is a frankable dividend and in respect of which a resolution (also a defined term - see later notes) has been made before that time to pay the dividend before the end of the franking year. As with the operation of paragraph (a), a dividend will be treated as a committed future dividend under this paragraph even though it may, in fact, not become payable before the end of the franking year. Dividends with a "reckoning day" (another defined term discussed later) before the particular time are excluded from the definition - such dividends will have had their required franking amount determined and, by the rules contained in proposed subsection 160AQE(2), the franking surplus of the company will already have been reduced to take account of the franked amount of the dividends concerned.
"data processing device", which is relevant to the provisions of proposed new section 160AS relating to the penalty for a false or misleading statement, is given a wide meaning so as to include any article or material from which information is capable of being reproduced with or without the aid of another article or device.
"director" is given essentially the same meaning as the term has under the Companies Cod e.
"dividend statement" is a statement that a resident company is required, by proposed new section 160AQH, to give to a shareholder in the company at or before the time of payment of a frankable dividend, and containing the information specified in that section in relation to the dividend.
"estimated debit" is an amount specified in an "estimated debit determination" (see notes below). Under proposed new subsection 160AQD(1), a company may lodge an application for an estimated debit determination where it has taken action to reduce its company tax liability, or expects to receive a refund of company tax instalments paid. The purpose of providing this facility to companies is to prevent the required franking amount rules contained in section 160AQE from operating on the basis of a franking surplus which is higher than it would be if account was taken of an expected reduction in company tax (e.g., due to an amendment to reduce tax assessed, a foreign tax credit becoming allowable or being increased, or a franking deficit tax offset) or an expected refund of an amount of company tax instalment. Without this facility, companies that expect such a reduction in tax would be required to frank dividends to an extent greater than their ultimate franking account balance might otherwise allow.
"estimated debit determination" is a determination made, or deemed to have been made, by the Commissioner under proposed section 160AQD on the basis of an application made by a company for the determination of an estimated debit.

"flow-on franking amount" is a term used in conjunction with other defined terms - "potential rebate amount", "partnership amount" and "trust amount" - to give effect to the policy that a partner, beneficiary or trustee in receipt of franked dividends through a partnership or trust is to be entitled to a rebate of tax (or to a franking credit in the case of a company partner or beneficiary) undiminished by expenses borne by the partnership or trust in relation to those franked dividends. In brief terms, "potential rebate amount" is effectively a portion of the imputation credit attaching to a franked dividend included in the assessable income or a partnership or trust estate, and is used to calculate the rebate of tax (or franking credit) available to a partner, beneficiary or trustee as the case may be. A "partnership amount", or a "trust amount" is, respectively, the individual interest of a partner in the net income of a partnership, or a partnership loss, as calculated under subsection 92(1) of the Principal Act, or the share of the net income of a trust estate that is included in the assessable income of a beneficiary under section 97, 98A or 100 of the Principal Act, or is assessed to the trustee of a trust estate under section 98, 99 or 99A of that Act.
A "flow-on franking amount" is to mean so much of a "partnership amount" or a "trust amount" as is attributable to a franked dividend. The definition allows the tracing of amounts attributable to a franked dividend through a chain of trust estates or combination of trust estates and partnerships so that, in conjunction with the "potential rebate amount", beneficiaries and partners are given the benefit of rebates of tax (if they are resident individuals and trustees) or franking credits (in the case of resident companies) - see later.
Paragraph (a) of the definition defines the flow-on franking amount in relation to a trust amount. Broadly, a trust amount is the amount of the "net income of a trust estate" (a term defined in subsection 95(1) of the Principal Act) that is assessed to a beneficiary or trustee under section 97, 98, 98A, 99, 99A or 100 of the Principal Act. The flow-on franking amount in relation to a trust amount is so much of the trust amount as is attributable to a franked dividend included in the assessable income of the trust estate (subparagraph (i)). Where the beneficiary of a trust estate (the "main trust") is a trustee of another trust estate, subparagraph (ii) operates to specify that so much of the net income of the main trust included in the assessable income of the beneficiary trust estate (the trust amount) as is attributable to a franked dividend included in the assessable income of the main trust, is the flow-on franking amount in relation to the trust amount.
Subparagraph (ii) operates successively so that the income attributable to a franked dividend can be traced from one trust through another wherever there is a trust amount (i.e., part of the net income of a trust estate to be assessed to a trustee or beneficiary) that directly or indirectly includes a franked dividend. The amount attributable to a franked dividend, whether it has passed through a number of trusts or not, is "the flow-on franking amount" in relation to the trust amount.
Subparagraph (iii) of the definition permits the tracing of a franked dividend where a trustee of a trust estate is a partner in a partnership. If the assessable income of the partnership includes (directly or indirectly) a franked dividend, there will be a flow-on franking amount in relation to the trustee's individual interest in the "net income of the partnership" or the "partnership loss" (terms that are defined in subsection 90(1) of the Principal Act) - see notes below on paragraph (b) of the definition. The net income of such a trust estate is assessed to the beneficiaries or the trustee - the trust amounts - and so much of the trust amounts as are attributable to the flow-on franking amount in relation to the trustee's interest in the partnership net income or loss is the "flow-on franking amount" of each trust amount.
Paragraph (b) provides for the tracing of a franked dividend that is included either directly or indirectly in the assessable income of a partnership. Flow-on franking amount is defined in the paragraph in relation to a "partnership amount" - a term defined to mean an amount included in or allowed as a deduction from assessable income of a partner in accordance with section 92 of the Principal Act - see later notes on that definition. Where the assessable income of a partnership includes a franked dividend, the flow-on franking amount in relation to a partner's individual interest in the partnership - the partnership amount - is so much of the partnership amount as is attributable to the franked dividend (subparagraph (i)). It is also possible, under the definition of "partnership amount", to have an amount of a partnership loss that is attributable to a franked dividend. Accordingly, even though a franked dividend may be completely offset by partnership expenses, the benefit of imputation credits in relation to the franked dividend can still pass through to the partners. Subparagraph (ii) of paragraph (b) establishes a flow-on franking amount where a partnership amount includes an amount attributable to a franked dividend that has been derived by the partnership through a trust estate.
"frankable dividend", is a term central to the operation of Part IIIAA which defines the dividends that are to be franked with imputation credits. Even if a dividend meets the general tests in this definition, it will not be a frankable dividend if it is paid before 1 July 1987.
Paragraph (a) brings within the definition an amount which is a dividend within the meaning of that term in section 6 of the Principal Act. In subsection 6(1) a dividend is defined to include -

any distribution made by a company to any of its shareholders, whether in money or other property;
any amount credited by a company to any of its shareholders as shareholders; and
the paid-up value of shares issued by a company to any of its shareholders to the extent to which the paid-up value represents a capitalization of profits,

but not to include, broadly -

moneys paid or credited or other property distributed by a company where the amount of the moneys or the value of the property is debited against an amount standing to the credit of a "share premium account" of the company (also a defined term under subsection 6(1) of the Principal Act);
the paid-up value of a share repaid by a company; or
a reversionary bonus on a policy of life assurance.

Subsections 6(4) and 6(5) of the Principal Act operate to include as a dividend an amount paid out of a share premium account where an arrangement or agreement exists to issue shares at a premium and distribute amounts out of the share premium account to which the premiums are credited, other than where non-redeemable shares are issued (unless they are issued under or as part of an agreement or arrangement designed to pay or transfer to shareholders any money or other property).
Paragraph (b) of the definition of frankable dividend brings within its scope liquidator's distributions to which subsection 47(1) of the Principal Act applies. Subsection 47(1) is to be amended by the provisions proposed in clause 8 of this Bill - see earlier notes on that clause.
The following amounts are excluded from the definition -

by paragraph (c), a dividend with a reckoning day before 1 July 1987. "Reckoning day" is a defined term which means, broadly, the day on which a dividend is paid or, where the dividend is paid under a resolution under which other dividends are to be paid, the day on which the first of the dividends is paid under the resolution. "Resolution" is also a defined term, and the provisions of proposed section 160APF operate where a resolution covers dividends on more than one class of shares (see notes on proposed section 160APE as to what constitutes a class of shares for the purposes of Part IIIAA) so that dividends on each particular class of shares are treated as being paid under a different resolution to the dividends on each of the other classes of shares concerned. The practical effect of this paragraph is to exclude from the meaning of frankable dividend, any dividends paid on or after 1 July 1987 as part of a distribution to a class of shareholders where any of the relevant dividends were paid before that date;
by paragraph (d) - a dividend paid by a co-operative company within the meaning of Division 9 of Part III of the Principal Act which is deductible under section 120 of that Act and is by that means free from any "double taxation"; and
by paragraph (e) - a dividend paid by a company that is a resident of a prescribed territory (i.e., Norfolk Island or the Territory of Cocos (Keeling) Islands) to a resident of such a territory, where the dividend is paid out of profits from sources in those territories or sources outside Australia. The provisions covering the prescribed territories are contained in Division 1A of Part III of the Principal Act.

It should be noted that because amounts that are deemed to be dividends under sections 108 and 109 of the Principal Act are not "dividends" as defined under subsection 6(1) of that Act, those deemed dividends are not frankable dividends.
"franked amount", in relation to a dividend, means that part of a dividend (including where appropriate the whole of the dividend) which the company paying it has declared to be franked in accordance with proposed section 160AQF.
"franked dividend" is defined to mean any dividend which a company has declared to be franked, in whole or in part, in accordance with section 160AQF.
"franking account assessment" is defined to mean the ascertainment of the "franking account balance" and the amount, if any, of the "franking deficit tax" payable on any "franking deficit". Each of those terms is also defined. The term is defined principally to facilitate the operation of the machinery provisions of Part IIIAA associated with the franking account surplus or deficit of a company.
"franking account balance" is defined to mean:

if the company has a "franking surplus" (a defined term) which is a credit balance - the amount of that surplus;
if the company has a "franking deficit" (also a defined term) which is a debit balance the amount of that deficit; and
in any other case - a nil amount.

"franking additional tax" is defined to mean additional tax payable by way of penalty under proposed new Division 11 of Part IIIAA which is discussed later. Briefly, the penalties under Division 11 are those against the substantial over-franking of dividends, setting out incorrect amounts in dividend statements (see also earlier notes), failure to furnish a return or information and giving false or misleading statements.
"franking additional tax assessment" means the ascertainment of a penalty under proposed Division 11.
"franking assessment" is defined to mean either a franking account assessment or a franking additional tax assessment.
"franking deficit" is defined to mean a deficit calculated at a particular time, in relation to a company, under section 160APJ. Broadly, the franking deficit of a company is the amount by which its franking debits at a particular time exceed its franking credits at that time (see later notes on proposed new Subdivisions B and C respectively of Division 2 of Part IIIAA).
"franking deficit tax" means tax payable in accordance with proposed new section 160AQJ. Where a company has a franking deficit at the end of a "franking year" (see later notes) it is to be liable to pay franking deficit tax. That tax will be imposed by the proposed Income Tax (Franking Deficit) Act 1986 discussed towards the end of this memorandum.
"franking surplus" is defined to mean a surplus calculated at a particular time, in relation to a company, under section 160APJ. It is the reverse of the franking deficit discussed above and in more detail in the later notes on Subdivisions B and C of Division 2 of this Part.
"franking year", is the period for which franking account assessments are raised. They are generally the equivalent of a year of income for income tax purposes. In relation to a company which becomes, or ceases to be, an early balancing company or, being an early balancing company, changes its accounting period, the term is to mean the (transitional) period determined by the Commissioner under proposed new section 160APH that is to be treated as a franking year in relation to the company (paragraph (a)). In relation to a company which is an early balancing company for the purposes of subsection 221AB(1) of the Principal Act (broadly, a company that balances on 31 May or any earlier date in lieu of the succeeding 30 June), it is to mean the substituted instalment period referred to in that subsection (paragraph (b)). For all other (in fact, most) companies (including those that balance on a date after 30 June in lieu of that day), the term is to mean a financial year, i.e., 1 July to 30 June (paragraph (c)).
"general company tax rate" is defined to mean the rate of tax imposed on taxable incomes of companies, other than companies that are registered organisations within the meaning of Division 8A of Part III of the Principal Act - broadly, friendly societies and certain other bodies that are subject to tax only on their income from life assurance business and at a special rate of 20 per cent. The term is used in the definition of "applicable general company tax rate" discussed earlier. Under the amendments proposed by clause 4 of the Income Tax Rates Amendments Bill 1987, the declared rate of tax for the 1987-88 and subsequent financial years will be 49 per cent. The rate declared is for the time being imposed by section 7 of the Income Tax Act 1986.
"liability reduction action", in relation to a company, is defined as meaning action seeking:

a reduction in the company's liability for company tax assessed, i.e., by way of a request for amendment of, or lodgment of an objection against, an assessment, or by an appeal seeking review of an unfavourable objection decision (paragraph (a));
an entitlement to a foreign tax credit or an increase in such an entitlement (paragraph (b)); or
an entitlement to an "offset" (discussed below) or an increase in such an entitlement, that is, where the company has become liable for franking deficit tax or an increased franking deficit tax liability that will be offset against an amount of company tax assessed (paragraph (c)).

The taking of liability reduction action is one of the alternative preconditions to a company's application for an "estimated debit determination" (a defined term discussed earlier) under section 160AQD, and it is principally for this purpose that the term is defined.
"offset" is an amount of franking deficit tax (see earlier notes) which is to be applied against a company's liability to pay company tax in accordance with the proposed new Subdivision C of Division 5 of this Part.
"offset determination" is to mean a determination made by the Commissioner under Subdivision C of Division 5 of the "offset" (see note above) to which a company is entitled.
"paid", in relation to an amount payable to the Commissioner under the Principal Act, including this proposed new Part, is to be given an extended meaning so as to include amounts discharged by the application of a credit or other amount by the Commissioner. This is necessary to ensure that, inter alia, the rules for franking debits and credits may be applied precisely.

"partnership amount" is a term used in connection with "flow-on franking amount" (see earlier notes) and "potential rebate amount" (see later notes) to ensure that where a partner receives a franked dividend through a partnership (either directly, or through a chain of trust estates or a combination of trust estates and partnerships), the partner will be entitled to a rebate (in the case of a resident individual) or a franking credit (in the case of a resident company) in relation to that franked dividend. "Partnership amount" is to mean an amount included in, or allowed as a deduction from, the assessable income of a partner under section 92 of the Principal Act. In general, this will be the partner's individual interest in the "net income of the partnership" or the "partnership loss" - terms defined in subsection 90(1) of the Principal Act.
"potential rebate amount" is a term defined in relation to a "trust amount" or a "partnership amount" which, in conjunction with the definition of "flow-on franking amount", will operate to determine, in relation to the partners, beneficiaries, or trustees sharing in a franked dividend included in the assessable income of a partnership or trust estate, the amount of the rebate entitlement (or franking credit entitlement of a company) that attaches to each share of the franked dividend. As indicated earlier in the notes on the definition of "flow-on franking amount", the Bill provides for an imputation credit to flow through a chain of trust estates or a combination of partnerships and trust estates so that the benefit of a dividend rebate (or franking credit) will be available to the ultimate partners, beneficiaries or trustees. As indicated in later notes on Division 7 of Part IIIAA, the potential rebate amount is also relevant to the determination of the assessable income of a partner or beneficiary who is a non-resident.
Paragraph (a) of the definition operates to determine the potential rebate amount in relation to an amount attributable to a franked dividend that is assessed to a beneficiary or trustee.
Subparagraph (a)(i) applies in the situation where a franked dividend is included in the assessable income of the trustee of a trust estate who is the shareholder. The potential rebate amount calculated by means of the formula contained in the subparagraph will ensure that the imputation credit attached to a franked dividend included as assessable income of the trust estate under proposed new section 160AQT, is apportioned between the beneficiaries or the trustee in the same proportions as the amount attributable to the franked dividend is included in the shares of the net income of the trust estate to which a beneficiary is presently entitled or in respect of which a trustee is liable to be assessed.
For example, a trustee of a trust estate who derives a franked dividend of $510 in a year of income will have an extra amount of $490 included as assessable income under proposed new section 160AQT. If two beneficiaries share equally in the income of the trust estate, each beneficiary will be assessed on $500, being their share of the net income of the trust estate under section 97 of the Principal Act (the "trust amount"). The amount attributable to the franked dividend in relation to the trust amount of each beneficiary is $255, (i.e., the "flow-on franking amount") and the potential rebate amount for each beneficiary is $245, calculated in accordance with the formula in this subparagraph as follows -

490 * (255)/(510) = $245

.
Subparagraph (a)(ii) applies, in much the same way as subparagraph (i) but will operate to determine the potential rebate amount for a beneficiary or a trustee of a trust estate in respect of a franked dividend received by another trust estate (the "earlier trust")in which the first mentioned trustee is a beneficiary. The definition of flow-on franking amount operates so that the amount attributable to a franked dividend can be identified even if the dividend was paid to a trustee of a trust estate the income of which is distributed through more than one trust. By the formula contained in this subparagraph the potential rebate amount calculated under subparagraph (i) for a particular franked dividend is apportioned between the beneficiaries and the trustee of the current trust in the same proportions as the amount attributable to that franked dividend derived by the earlier trust estate is included in the shares of the net income of the current trust estate to which a beneficiary is presently entitled or in respect of which a trustee is liable to be assessed.
For example, if one of the beneficiaries referred to in the example contained in the notes on subparagraph (i) above, was itself the trustee of a trust estate, the assessable income of that trust estate would include $500, being the share of the net income of the earlier trust estate ("the earlier trust amount"). The current trust amount of each of, say, five beneficiaries who share equally in the income of the current trust estate would be $100, being their share of the net income of that trust estate under section 97 of the Principal Act. The amount attributable to the franked dividend derived by the earlier trust in relation to the current trust amount of each beneficiary is $51 (i.e., the flow-on franking amount in relation to the current trust amount), and the potential rebate amount for each beneficiary is $49, calculated in accordance with the formula in this subparagraph as follows -

245 * (51)/(255) = $49

.
Although a franked dividend, and therefore the flow-on franking amount, may be reduced by expenses as it passes from one trust to another, the potential rebate amount is calculated by reference to the extra amount included in the assessable income of the trust estate that originally derived the franked dividend. As a result, the potential rebate amount is not reduced by expenses of the trust. However, if in the end there is no amount of net income of a trust estate that is to be assessed to a beneficiary or trustee (i.e., there is no trust amount), the potential rebate amount cannot be passed on to beneficiaries.
Subparagraph (iii) operates in the same way as subparagraph (ii), except that it is applied for the purpose of determining the potential rebate amount which is to be available to the trustee or to a beneficiary of a trust estate in respect of a franked dividend received directly or indirectly by a partnership of which the trust estate is a partner.
Paragraph (b) of the definition provides for the calculation of the potential rebate amount in relation to an amount attributable to a franked dividend that is included in the individual interest of a partner in the net income of a partnership, or in a partnership loss. The potential rebate amount is calculated by the use of formulae contained in subparagraphs (i) and (ii) that operate in substantially the same way as those referred to in the notes relating to paragraph (a) of the definition.
Subparagraph (i) applies in the situation where a franked dividend is included in the assessable income of a partnership. The potential rebate amount for each partner is calculated by means of the formula contained in the subparagraph. This ensures that the imputation credit attached to the franked dividend included as assessable income of the partnership is apportioned between the partners in the same proportion as the amount attributable to the franked dividend is included in the net partnership income (or loss) that is assessed (or allowed as a deduction) to each partner.
Subparagraph (ii) provides for the calculation of a potential rebate amount where the partnership is entitled to a share of the net income of a trust estate that includes an amount attributable to a franked dividend. By the formula contained in this subparagraph, the potential rebate amount calculated under paragraph (a) of this definition in relation to a share of the net income of a trust estate that is include d in the assessable income of a partnership (the trust amount), is apportioned between the partners in the same proportions as the amount attributable to the franked dividend is included in the net partnership income (or loss) that is assessed (or allowed as a deduction) to each partner.
"reckoning day", is another term central to the operation of the imputation system. Its function relates to the application of the required franking amount rules contained in proposed Division 4 of Part IIIAA which are discussed later.
In that context, it will operate to establish the day on which, in relation to the payment of a dividend, a company is required to determine the extent to which that dividend is required to be franked. In conjunction with the term "resolution" explained below, the reckoning day for a dividend paid as part of a distribution made over more than one day, is the day on which the first of those dividends was paid (paragraph (a)) or, in any other case, the day on which the dividend is paid (paragraph (b)).
By virtue of this definition, dividends paid on or after 1 July 1987 as part of a distribution that commenced before that day will have a reckoning day before that date and will not be franked dividends.
"resolution", in relation to the payment of dividends to a shareholder in a company, is defined in an extended way to mean an authorisation, a declaration, a resolution or an agreement given or made by either the company or any or all of the directors of the company in accordance with the rules governing the payment of dividends by the company, that those dividends be paid. In the majority of cases, a resolution to pay dividends would be, in the case of an interim dividend, the decision of directors to do so and, in the case of a final dividend, the resolution of the members of a company in general meeting to pay the dividend.
"termination time" is a term relevant to a franking debit that arises from an "estimated debit determination" (another defined term discussed earlier). Briefly stated, it is the time at which the action giving rise to the franking debit terminates, and a franking credit to reverse the earlier debit is required.
Termination time is defined in relation to three matters described in paragraphs (a), (b) and (c) of the definition. Paragraph (a) deals with the termination of a "liability reduction action" (see earlier notes on that definition). By this paragraph, the termination time in relation to a matter which is finally resolved, to any degree, in the company's favour is the time at which the Commissioner serves a notice of an assessment or determination giving effect to a determination by the Commissioner, or by a court or tribunal, of the matter. Where the matter giving rise to the liability reduction action is resolved in a manner entirely unfavourable to the company, the termination time is the time at which the Commissioner serves notice of the decision on the matter or, where the matter is determined by a court or tribunal, at the time when that matter is determined by the court or tribunal.
Paragraph (b) deals with an estimated debit in relation to a company tax instalment. By this paragraph, the termination time in relation to the payment of one or more company tax instalments is the time at which the Commissioner serves notice of the application of the instalment or instalments concerned either by refund or credit, or by a combination of both, in accordance with section 221AI of the Principal Act.
Paragraph (c) sets the termination time for an estimated debit as the termination time ascertained under paragraph (a) or (b), whichever is appropriate to the estimated debit determination made. Thus, a franking credit will arise under proposed section 160APU when, e.g., in the case of a request for an amendment of a company tax assessment, an amended assessment is issued or the Commissioner serves notice that no amended assessment is to be made. Where a company has received an estimated debit determination because it expects to receive a refund of all or part of company tax instalments it has paid, a franking credit will arise under that proposed section when the relevant instalment or instalments, or the relevant part, is credited or refunded to the company.
The ascertainment of the appropriate termination time is of importance to three events associated with estimated debit determinations, namely -

an application by a company for an estimated debit determination is required by proposed paragraph 160AQD(2)(a) to be made before the termination time;
a notice of an estimated debit determination is, by virtue of proposed paragraph 160AQD(5), of no effect if served after the termination time. That is, the estimated debit determination will not give rise to a franking debit in such cases; and
as noted above, under proposed section 160APU, a franking credit equal in amount to the estimated debit occurs on the day on which the termination time in relation to the estimated debit occurs.

"trust amount" is a term used in connection with the definitions of "flow-on franking amount" and "potential rebate amount", also contained in new section 160APA. The term is basically a drafting aid to refer to -

a share of the net income of a trust estate that is included in the assessable income of a beneficiary under section 97, 98A or 100 (paragraph (a));
a share of the net income of the trust estate in respect of which the trustee is liable to be assessed under section 98 (paragraph (b)); or
the net income, or a part of the net income, of the trust estate in respect of which the trustee is liable to be assessed under section 99 or 99A (paragraph (c)).

"withholding income" is defined to mean income to which section 128B would apply but for the proposed amendment of that section to insert new paragraph (3)(ga) (see notes on clause 11 of the Bill) which will ensure that the franked amount of a franked dividend will not be subject to withholding tax. The definition of "withholding income" will include the franked amount of a franked dividend that would have been subject to withholding tax but for the proposed amendment (i.e., because the recipient was a non-resident). It should be noted that under the amendment to section 128D of the Principal Act proposed by clause 12 (see notes on that clause), withholding income will not be included in the assessable income of a person.

Section 160APB: Reference to company not to include trustee

Section 160APB is a purely formal provision to ensure that a reference in the new Part IIIAA to a company does not include a reference to a company when it is acting in the capacity of a trustee.

Section 160APC: Liquidators

Section 160APC ensures that a reference in new Part IIIAA to a company includes a reference to the liquidator (itself defined in subsection 6(1) of the Principal Act) of a company. By this means, the provisions of Part IIIAA will apply to liquidators in the same way as they do to companies, and will ensure that liquidators' distributions are able to be franked in the same way as dividends paid by a company.

Section 160APD: Interim dividends

Section 160APD will operate to ensure that interim dividends that are to be paid at or before a particular time are taken into account as "committed future dividends" (see earlier notes) so that the required franking amount rules in proposed section 160AQE operate as intended in relation to such dividends. The provision has been inserted because of the decision of the High Court of Australia in Brookton Co-operative Society Ltd v Federal Commissioner of Taxation (1981) 35 ALR 293 that the declaration of an interim dividend by directors of a company, having power under the Articles of the company to pay a dividend, does not create a debt owing by the company to its shareholders.

Section 160APE: What constitutes a class of shares

Section 160APE sets out rules for distinguishing one class of shares from another to ensure that the provisions relating to franking of dividends are appropriately applied to genuinely different classes of shares, and to shares that are in reality of one class but which may be given the appearance of being of different classes.

By subsection (1), but subject to subsection (2), a share in a company is to be taken to be of the same class as another share in the company if the shares have the same nominal value. Thus, where a company's share capital is divided into $1 shares they are, unless proposed subsection (2) applies, to be taken for imputation purposes to be of one class.

Subsection (2) specifies that a share in a company is not to be taken to be in the same class as another share in the company if, under the constituent document of the company, different rights are attached to the shares in respect of any or all of the following -

the receipt of dividends (paragraph (a));
the receipt of any distribution of capital of the company (paragraph (b)); or
the exercise of the voting power in the company (paragraph (c)).

By this subsection, shares of the same nominal value will be taken to be of the same class unless the company's Memorandum or Articles of Association specifies different rights in relation to the shares in respect of the matters listed. For this purpose, it is not sufficient that the Memorandum or Articles give directors of the company the power to pay such dividends as they may determine. If shares are to be taken for the purposes of Part IIIAA to be of different classes, the constituent document of the company must specify the rights carried by those shares and the rights so specified must differ (e.g., a specification that Class A shares carry an entitlement to dividends of a particular amount in priority to the payment of dividends on Class B shares).

Section 160APF: Deemed separate resolutions

Section 160APF is to the effect that a resolution that would be a single "resolution" (a defined term) in relation to dividends to be paid in respect of two or more classes of shares, is to be treated as separate resolutions in relation to the dividends to be paid on the shares of each of those classes. This provision like section 160APE discussed above is designed to ensure that Part IIIAA will have its intended operation where a company resolves to pay dividends on different classes of shares under one resolution.

Section 160APG: Sufficient residence for company in a year of income

Section 160APG is another interpretative measure that is relevant to the franking of dividends by resident companies. In practice, its application will be restricted to the situation of a company which becomes, or ceases to be, a resident company and, in conjunction with new sections 160APK, 160APW and 160AQF, will effectively regulate the extent to which such a company can frank the dividends it pays having regard to the franking credits and debits that arise in respect of a year of income in which the company is "sufficiently resident" in Australia.

For this purpose, a company is to be treated as being sufficiently resident in a year of income if -

the company is a resident for more than one-half of that year (paragraph (a)); or
the company is a resident at all times during the year when it existed, i.e., from incorporation or until it is dissolved (paragraph (b)).

Section 160APH: Commissioner may determine that period be treated as a franking year

Section 160APH contains rules that will allow the Commissioner of Taxation to determine, for companies granted leave to adopt, or change from, an early balancing date, a nominated period as a "franking year" (a term defined in new section 160APA) to be taken as a transitional franking period before the company assumes the normal franking year relevant to its accounting year. An early balancing company is one which has an accounting period ending on 31 May or any earlier date in lieu of the succeeding 30 June.

Subsection 160APH(1) authorises the Commissioner, to determine that a specified period be treated as the franking year for a company in three situations. These are where -

an early balancing company for the purposes of subsection 221AB(1) of the Principal Act changes to a different accounting period (paragraph (a)); or
a company becomes, or ceases to be, an early balancing company for the purposes of that subsection (paragraph (b)).

A determination by the Commissioner under this subsection must be served by notice in writing on the company. By virtue of subsection (2), the period specified in the Commissioner's notice may commence earlier than the date of service of the notice, and may be shorter or longer than a period of 12 months.

An application of this provision may be illustrated by the case of a new company starting up on, say, 1 August 1987 - which seeks, and obtains, leave of the Commissioner to adopt the accounting period ending on 31 December in lieu of the next succeeding 30 June. The company is therefore an early balancing company for the purposes of subsection 221AB(1) of the Principal Act, and, by paragraph (c) of the definition of "franking year" in section 160APA, the substituted instalment period referred to in subsection 221AB(1), would become the company's franking year.

If nothing more were done, the company would not have a franking year until the first substituted instalment period commencing on 1 January 1988. To address this situation the Commissioner would, at the time of giving leave to adopt a substituted accounting period, by notice in writing served on the company, determine that the period 1 August 1987 to 31 December 1987 be treated as the company's first franking year. Thereafter, by force of paragraph (c) of the definition of franking year in section 160APA, the substituted instalment period referred to in subsection 221AB(1) would be the franking year in relation to the company.

Division 2 - Franking Surplus or Deficit

The ability of a company to frank the dividends it pays is determined in the first instance on the franking surplus of a company at the time of payment of dividends, and liability for franking deficit tax is based on the franking deficit of a company at the end of a franking year. Division 2 sets out the means by which the franking surplus or franking deficit of a company may be determined, and the requirements regarding franking credits and franking debits which are integral to that determination.

Subdivision A - Ascertainment of Surplus or Deficit

Section 160APJ: Ascertainment of surplus or deficit

Section 160APJ defines a franking surplus and a franking deficit.

By subsection (1), the franking surplus of a company at a particular time is the amount by which the total of the franking credits of the company arising in the franking year up until that time, exceeds the total of the franking debits of the company arising in the franking year up until that time. Franking credits are dealt with in Subdivision B and franking debits in Subdivision C.

Conversely, subsection (2) defines the franking deficit of a company at a particular time as the amount by which the total of the franking debits of the company arising in the franking year up until that time, exceeds the total of the franking credits of the company arising in the franking year up until that time.

Subdivision B - Franking Credits

Subdivision B of Division 2 specifies the franking credits to which a company may become entitled during a franking year. In the following notes relating to franking credits and those in relation to Subdivision C in respect of franking debits, a reference to an "eligible year of income" (which is defined in section 160APA) is a reference to the year of income that commenced on 1 July 1986, and any subsequent year of income. In this way, franking credits and debits attributable to the payment or refund of company tax, for example, will only arise in relation to such tax as is applicable to income which is subject to tax at the 49 per cent rate. Put another way, tax arising under an assessment or amended assessment of income of the 1985-86 or any earlier income year will not give rise to a franking credit or a franking debit.

Section 160APK: Residence requirement for credit to arise in relation to year of income

By section 160APK, a franking credit of a company will not arise in relation to -

company tax instalments (paragraph (a));
assessed company tax (paragraph (b)); or
foreign tax credits (paragraph (c)),

unless the company is sufficiently resident in the year of income. The term "sufficiently resident" is defined in new section 160APG. The broad rule is that a company will not be entitled to the franking credits listed above unless it is resident for more than one-half of the year of income to which the instalment, assessment or foreign tax credit relates, or is resident for the whole of the period of the year of income during which it exists, if that is less than half of the income year.

Section 160APL: Carry forward of franking surplus

Section 160APL is simply to the effect that where a company has a franking surplus at the end of one franking year, a franking credit arises at the beginning of the next franking year equal to that surplus. In other words, a franking surplus is carried forward from one year to the next.

Section 160APM: Payment of company tax instalments

Under this section, a franking credit equal to the adjusted amount in relation to a company tax instalment arises on the day an instalment is paid. As noted earlier in the explanation of the definition of "adjusted amount", the credit will, on the basis of the company tax rate to apply for the 1986-87 year of income, be an amount calculated by applying to the amount of the instalment paid the fraction 51/49.

Franking credits for company tax instalments paid are reversed when the company tax assessment in which they are credited is issued, or where the instalments are otherwise applied or are refunded (refer notes on proposed section 160APY).

Section 160APN: Receipt of company tax assessment

Section 160APN provides for a franking credit to arise on the day of service of an original company tax assessment for an eligible year of income. The amount of the franking credit will be an amount equal to the adjusted amount in relation to the company tax assessed, i.e., on the basis of the company tax rate for the 1986-87 year of income, the amount calculated by applying the fraction 51/49 to the company tax assessed. Because company tax instalments previously paid would already have given rise to a franking credit (see notes on section 160APM), a franking debit will also arise on the day of service of an original company tax assessment of an amount equal to the instalments applied in the assessment by the Commissioner under section 221AI of the Principal Act - see later notes on section 160APY.

Section 160APP: Receipt of franked dividends

Under paragraph (a) of this section, a franking credit will arise on a day when a franked dividend is paid to a company, provided the company is a resident at the time the dividend is paid (paragraph (b)). The franking credit will be an amount equal to the franked amount of the dividend but, unlike the credits outlined above, there will be no need to apply the "adjusted amount" formula because the franked amount is itself an income amount in which the franking amount is maintained. It is also to be noted that a company which is a resident but not sufficiently resident when a franked dividend is paid to it, is not, by section 160APK discussed earlier, denied a franking credit in relation to the dividend. In other words, such a company will be able to utilise the credit to frank dividends it pays.

Section 160APQ: Receipt of franked dividends through trusts and partnerships

By section 160APQ franking credits arise where a company is a beneficiary in a trust estate or a partner of a partnership that has received, directly or indirectly, franked dividends.

The section imposes two conditions upon a company's entitlement to a franking credit in these circumstances -

a trust amount or partnership amount must be included in, or a partnership amount allowed as a deduction from, the assessable income of the company. The terms "trust amount" and "partnership amount" are defined in new section 160APA explained earlier (paragraph (a)); and
there must be a "flow-on franking amount" (a term also defined in section 160APA - see earlier notes) in relation to the trust amount or partnership amount referred to in paragraph (a). The flow-on franking amount, in general terms, is so much of the trust amount or partnership amount as is attributable (directly or indirectly) to a franked dividend (paragraph (b)).

If these conditions are satisfied, the company is entitled to a franking credit calculated in accordance with the formula set out in this section using the "applicable general company tax rate" (also defined in section 160APA - see earlier notes). This formula will translate the "potential rebate amount" in relation to the trust amount or partnership amount into the equivalent income amount in the same way as various tax amounts are converted under sections 160APM and 160APN discussed earlier. As also indicated in the earlier notes on section 160APA, the "potential rebate amount" is the part of the imputation credit attached to the franked dividend and included in the assessable income of the trust or partnership, that a partner or beneficiary is entitled (determined in the same proportion that he or she is entitled to share in the franked dividend).

In other words, a company beneficiary will, by the operation of this section, be entitled to the same franking credit as would have been the case if that part of the franked dividend to which the company is entitled under the terms of the trust deed or partnership agreement had been received by the company directly as shareholder.

By way of example, two companies may share equally in the income of a trust estate which receives a fully franked dividend of $510 and in relation to which an extra amount of $490 is included in the assessable income of the trust estate, i.e., a total of $1000. If the trustee incurs $200 interest in earning the dividend, the net income of the trust will be $800 and the trust amount for each company beneficiary $400. For each trust amount the flow-on franking amount is $155 (i.e., the net amount attributable to the franked dividend). Using the relevant formula contained in the definition of potential rebate amount, the potential rebate amount for each company is $245, calculated as follows,

490 * (155)/(310)

. Based on the applicable general company tax rate for income of the 1986-87 income year, the franking credit for each company is obtained by applying the fraction 51/49 to the potential rebate amount. In this case, each company has a franking credit of $255, which is the same as it would have been for each company had the dividend been paid directly to them.

It should be noted that the franking credit under section 160APQ arises at the end of the year of income of the relevant trust estate or partnership (generally 30 June). The franking account balance of the company will not, therefore, be increased as a result of franked dividends received through partnerships and trusts until, in most cases, the last day of the franking year.

For a company beneficiary or partner that is a non-resident and is presently entitled to a dividend included in the income of a trust estate, the combined effect of subsection 128A(3) and sections 128B and 128D of the Principal Act, is to exclude the dividend from the assessable income of the company and instead expose the company to withholding tax. Under the amendments to subsection 128B(3) and section 128D proposed in clauses 11 and 12 of this Bill, a franked dividend will not be subject to withholding tax, and section 128D will continue to exclude such income from the assessable income of a non-resident. Accordingly, the trust amount for a non-resident company beneficiary, and the partnership amount for a non-resident company partner, will not include a "flow-on franking amount" which, as indicated in previous notes on that definition, is the amount that is attributable to franked dividends included in a trust or partnership amount.

The proposed new section 160APP discussed earlier provides that a company will become entitled to a franking credit in relation to a franked dividend only if the company is resident at the time the dividend is paid. Similarly, only a resident company will be entitled to a franking credit for franked dividends received through a trust or partnership. This is achieved by paragraph (b) of the section which is to the effect that, if the company, beneficiary or partner were not residents when the franked dividend was paid, the amount attributable to the franked dividend would not, under the rules outlined in the preceding paragraph, be included in the relevant trust or partnership amount, i.e., there would be no flow-on franking amount in relation to the trust amount or the partnership amount.

Section 160APR: Amended company tax assessment increasing tax

Under section 160APR, a franking credit will arise on the day of service of an amended company tax assessment which increases the company tax assessed for an eligible year of income. The franking credit will be an amount equal to the adjusted amount in relation to the amount of the increase in company tax. As noted earlier, this will be an amount ascertained by applying the fraction 51/49 to the amount by which company tax assessed is increased. Only the amount of the increase will give rise to a credit as the original company tax assessed would have given rise to a credit under section 160APN (see earlier notes). This mechanism will avoid the need to make cumbersome adjustments to previous franking account balances when amended assessments are issued.

Section 160APS: Reduction of offset

Section 160APS is more readily understood if reference is made to proposed section 160AQ. Under the latter section, a franking debit arises equal to the adjusted amount in relation to any franking deficit tax that is offset against company tax. Under section 160APS a franking credit will arise equal to the adjusted amount in relation to any reduction in the amount of franking deficit tax offset against company tax. Provisions governing franking deficit tax offsets are contained in Subdivision C of Division 5 (see later notes).

Section 160APT: Reduction of foreign tax credit

Section 160APT achieves, in relation to foreign tax credits, broadly the same result as section 160APS produces in relation to franking deficit tax offsets. Under section 160APT, there arises a franking credit equal to the adjusted amount in relation to any reduction in the amount of foreign tax credit allowable. The foreign tax credit originally allowed would have given rise to a franking debit under proposed new section 160AQA, and this section is necessary to reduce the franking debit where the foreign tax credit is itself reduced.

Section 160APU: Lapsing of estimated debit

This section establishes the rule that a franking credit arises on the day on which the termination time (as defined and discussed earlier) in relation to an estimated debit occurs. The amount of the franking credit is equal to the amount of the estimated debit which lapses.

The effects of the rule are twofold. First, it prevents the double-counting of a franking debit - once at the time the notice of an estimated debit determination is served, and again at the time of service of either a notice of an amended assessment reducing the company's income tax liability or a notice specifying the application of company tax instalments paid. Secondly, it restores the franking account balance to its proper level in the event of an anticipated franking debit not eventuating.

For example, at the time the Commissioner serves notice of a determination of an increased foreign tax credit claimed by a company, a franking debit equal to the adjusted amount in relation to the amount of the increase in the foreign tax credit will arise. If the company had applied for an estimated debit determination in relation to the increased foreign tax credit, a franking debit would also have arisen at the time of service of the notice of that determination. Double-counting of the franking debit relating to the increased foreign tax credit would therefore have occurred unless a franking credit, equal in amount to the estimated debit, is made to correct the position.

This section operates, at the time when the matter giving rise to an estimated debit reaches finality, to create a franking credit of an amount that matches the franking debit which arose under section 160AQC from the estimated debit determination. As noted, in doing so this mechanism prevents any double-counting of a franking debit where the anticipated franking debit eventually does arise, and it also corrects the franking account balance where the anticipated franking debit does not eventuate.

Section 160APV: Substituted estimated debit determination

Where a notice of an estimated debit determination is issued by the Commissioner in substitution for a notice of an estimated debit determination previously issued, section 160APV operates to raise a franking credit equal in amount to the earlier estimated debit.

By matching the amount of the franking debit that arose from the earlier estimated debit determination, the franking credit that arises under this section ensures that the franking debit flowing from the revised estimated debit is substituted for that earlier debit.

Subdivision C - Franking Debits

Subdivision C sets out the franking debits which will arise in relation to a company.

Section 160APW: Residence requirement for debit to arise in relation to year of income

Section 160APW substantially mirrors section 160APK relating to franking credits, and is to the effect that a franking debit of a company does not arise in relation to company tax instalments paid (paragraph (a)), an amended company tax assessment (paragraph (b)) or foreign tax credits (paragraph (c)), unless the company is sufficiently resident in the year of income (as defined in section 160APQ - see earlier notes).

Section 160APX: Under-franking

Required franking amount rules are contained in proposed section 160AQE (see later notes). These rules regulate the extent to which dividends are to be franked so as to ensure the orderly operation of the imputation system and to address arrangements for channelling franked dividends to selected shareholders in preference to others. Section 160APX will create a franking debit where a dividend is franked to an extent less than the required franking amount.

By paragraph (a), a franking debit will not arise under section 160APX in respect of under-franking of a frankable dividend if the required franking amount for the dividend is less than 10% of the amount of the dividend. This is a statutory form of de minimis relief. In other cases, by virtue of paragraph (b), the section will otherwise apply if the required franking amount of a dividend is greater than the franked amount of the dividend. Where the section applies the franking debit will be an amount equal to the amount by which the required franking amount of the dividend exceeds the franked amount of the dividend. The section will therefore operate as a sanction against under-franking by reducing the franking surplus available to frank later dividends.

Section 160APY: Application of company tax instalment

As mentioned in the earlier notes on section 160APM this section basically effects a reversal of the franking credits arising under that section for company tax instalments paid when the instalments are applied or refunded. Where a company has paid an instalment of tax in respect of income of a year of income and an assessment is made of the amount of income tax payable by the company in respect of its taxable income of that year of income, subsection 221AI(2) of the Principal Act directs the Commissioner to credit the amount of the instalment in payment successively of any income tax payable by the company in respect of that taxable income, and any other income tax or any withholding tax payable by the company. Any part of the instalment which is not so credited is required to be refunded to the company.

Section 160APY establishes a franking debit equal to the adjusted amount in relation to an amount of company tax instalment applied under section 221AI (whether by credit, refund or both) when the Commissioner serves notice that the instalment has been so applied. In most cases this notice will be served with the company tax assessment.

Section 160APZ: Amended company tax assessment reducing tax

Under section 160APZ, a franking debit will arise on the day of service of an amended company tax assessment which reduces the company tax assessed for an eligible year of income. The franking debit will be an amount equal to the adjusted amount in relation to the reduction in the amount of company tax. As noted earlier, this will be an amount ascertained by applying the fraction 51/49 to the amount by which company tax assessed is reduced under the amended assessment.

Section 160AQ: Allowance of Offset

Under this section a franking debit arises on the day on which the Commissioner serves on a company notice of a determination made under Subdivision C of Division 5 that the company is entitled to an offset for franking deficit tax against its company tax liability (paragraph (a)). The amount of the franking debit is the adjusted amount in relation to the offset (paragraph (c)).

The section also stipulates that a franking debit arises on the day on which the Commissioner serves on a company notice of an amended determination that increases the amount of franking deficit tax offset to which the company is entitled (paragraph (b)). The amount of the franking debit in this instance is the adjusted amount in relation to the increase in the offset (paragraph (d)).

As noted earlier in relation to section 160APS, a franking credit will arise where there is a reduction in the amount of a franking deficit tax offset.

Section 160AQA: Allowance of foreign tax credit

Under section 160AQA, a franking debit arises where the Commissioner serves on a company a notice of a determination that a foreign tax credit is allowable, or of a determination increasing the amount of a foreign tax credit that is allowable (paragraphs (a) and (b)).

In the first case the amount of the franking debit is the adjusted amount in relation to the foreign tax credit (paragraph (c)), and in the latter it is the adjusted amount in relation to the increase in the foreign tax credit (paragraph (d)).

Section 160AQB: Payment of franked dividends

Under section 160AQB, a franking debit equal to the franked amount of a dividend arises on the day of payment of a franked dividend.

Section 160AQC: Estimated debit determination

This section provides for a franking debit to arise on the day on which the Commissioner serves on a company notice of an estimated debit determination under Division 3 (see later notes). The amount of the franking debit is equivalent to the estimated debit specified in the determination.

The anticipated franking debit that the estimated debit represents is thus treated as an actual franking debit for the purpose of calculating the required franking amount for any dividend paid before the termination time of the estimated debit.

As mentioned in the earlier notes on sections 160APU and 160APV, franking credits arise where an estimated debit determination lapses, or where one such determination is substituted for another.

Division 3 - Estimated Debits

Section 160AQD: Determination of estimated debit

Division 3 of Part IIIAA consisting of section 160AQD - provides the mechanism by which a company, having a franking surplus which it anticipates will be reduced at some future date other than by the payment of franked dividends, is able to seek a reduction in its franking surplus for the purpose of determining the required franking amount for dividends it proposes to pay.

By reducing the franking surplus on this basis, the company can frank its dividends to an appropriate extent without creating a franking deficit, and possibly becoming liable to franking deficit tax, that could result if the dividends were franked to the extent of the required franking amount calculated by reference to its existing franking surplus without regard to the anticipated franking debit. Alternatively, the company can frank its dividends to an appropriate extent without having a "penalty" franking debit arise under section 160APX for under-franking that would otherwise result if the dividends were franked on the basis of the franking surplus as reduced by the amount of the anticipated franking debit.

This Division formalises the procedure for an anticipated franking debit to be taken into account as an actual franking debit for the purpose of calculating a company's franking surplus.

The circumstances in which a company may anticipate a franking debit are -

where it expects the Commissioner to issue a notice of:

-
an amended company tax assessment reducing its company tax liability as a consequence of an objection, appeal or request for review of a company tax assessment;
-
a determination that a foreign tax credit is allowable, or that an increased foreign tax credit is allowable; or
-
a determination that it is entitled to an offset or an increased offset in relation to a liability for franking deficit tax; or

where the estimated income tax payable on the taxable income of the company for the year preceding the year of tax is less than the amount of company tax instalments paid in respect of that year of income, and the company expects the Commissioner to refund the difference or to apply it as a credit against any liability of the company for other taxes administered by the Commissioner.

In order to have the anticipated debit treated as a franking debit, the company must apply to the Commissioner, in the manner prescribed, for the determination of an estimated debit. The service of notice on the company of an estimated debit determination gives rise to a franking debit (see earlier notes on section 160AQC).

At the time when the matter in respect of which an estimated debit determination has been requested is resolved or occurs, the franking debit arising from the estimated debit is reversed by a franking credit equal to the amount of the estimated debit (see earlier notes on section 160APU).

Other franking debits may arise at that time, e.g., from the allowance of an increased foreign tax credit, or from the application of company tax instalments.

Subsection (1) of section 160AQD provides that a company may apply to the Commissioner for an estimated debit determination where it has either taken liability reduction action (as defined) (paragraph (a)), or paid one or more company tax instalments (paragraph (b)). The estimated debit must relate to the liability reduction action taken, or the company tax instalments paid, as appropriate (paragraphs (c) and (d)).

The manner in which the company's application must be made is prescribed by subsection (2). The application must be made before the termination time (as defined) in relation to the liability reduction action taken or the company tax instalments paid (paragraph (a)). It must also be in a form approved by the Commissioner and must specify the amount of estimated debit (i.e., the adjusted amount of tax in relation to the amount involved) sought by the company (paragraphs (b) and (c)).

By subsection (3) the Commissioner is authorised to determine the amount of the estimated debit (paragraph (a)), and is obliged to serve notice on the company of that determination (paragraph (b)).

Under subsection (4), if the Commissioner has neither served notice of a determination nor refused to make a determination during the period ending 21 days after lodgment of an application by a company (paragraphs (a) and (b)), the Commissioner is to be deemed, immediately after the twenty-first day has expired, to have made and to have served notice of a determination of an estimated debit equivalent to the amount specified in the application by the company (paragraphs (a) and (d)).

Subsection (5) explicitly declares that a notice of an estimated debit determination served after the relevant termination time in relation to a matter is of no effect.

Division 4: Required Franking Amount

Division 4 sets out the required franking amount rules in relation to a dividend which are integral to the operation of the imputation system. These rules will determine the minimum extent to which dividends are required to be franked but, subject to the conditions outlined below, are not intended to limit the extent to which a company may frank its dividends. Section 160AQF will enable a company to frank the dividends it pays to the extent it has declared under that section, and there is no formal restriction on a company that wishes to frank a dividend beyond the required franking amount from doing so.

The flexibility is intended to allow a company, particularly in the early days of the imputation system, to frank its dividends to an extent greater than its franking surplus at the time of payment would allow, provided such over-franking is based on a reasonable estimate of franking credits and debits which are expected to arise by the end of the franking year. Where a franking deficit exists at the end of the franking year, e.g., because an anticipated franking credit did not arise, the company will be liable to pay franking deficit tax under section 160AQJ (see later notes). However, the ability to over-frank dividends in the manner described is not an option to be used by companies to indiscriminately over-frank dividends. Reflecting this, where a dividend is over-franked and a franking deficit exists at the end of the franking year concerned, the company will be liable to pay a penalty of up to 30 per cent of the franking deficit tax if the over-franking was not based upon a reasonable estimate of its franking credits and debits - see later notes on section 160ARX.

Where a company does not frank its dividends to the minimum amount required by this Division a franking debit will arise. That debit will reduce the company's franking surplus (or increase its deficit) to the extent that it would have been reduced (or increased as the case may be) if the dividend had been franked to the extent required.

The rules contained in Division 4 apply to each dividend paid to shareholders of a company. In this context, as under the existing provisions of the Principal Act, a dividend is the actual amount paid to a shareholder and may thus vary from shareholder to shareholder. It is for this reason that the amount to which dividends are declared to be franked under proposed new section 160AQF is to be expressed as a percentage of the dividends paid.

To explain more fully how the required franking amount rules in Division 4 will operate, examples are set out at the end of the notes on the Division.

Section 160AQE: Ascertainment of required franking amount

There are three basic required franking amount rules contained in this section. More than one amount may arise under two of the three rules. By subsection (1) the required franking amount in relation to a dividend is -

where only one required franking amount (referred to as a provisional required franking amount) exists - that required franking amount (paragraph (a)); and
where more than one provisional required franking amount exists - the greater or greatest provisional required franking amount (paragraph (b)).

The required franking amount is, by subsection (1), limited to the amount of the dividend.

Subsection (2) contains the rules for determining the first provisional required franking amount. This is the basic rule referred to as the "first out of franking surplus" rule. It requires a company to frank its dividends to the extent that its franking account surplus at the time of payment of the dividends permits. The provisional required franking amount under subsection (2) is calculated by the formula -

CD * (RFS)/(TD + CFD + SDD)

In this formula, CD is the amount of the dividend for which a provisional required franking amount is being calculated - the "current dividend". The part of the formula in parenthesis will result in a fraction, and the amount of the current dividend multiplied by that fraction is the provisional required franking amount.

In the formula, RFS is the reduced franking surplus. Its use is linked to the "reckoning day" approach described earlier under which for the purposes of this Division, dividends which are part of one distribution but are not all to be paid on one day, are treated as being paid on the day on which the first of those dividends is paid. Thus, when a dividend is paid under any particular resolution, a certain amount of the franking surplus of the company at the beginning of the day on which that dividend is paid, needs to be "quarantined" to enable franking of any dividends with an earlier reckoning day that remain unpaid at the beginning of that day.

The symbols used in the formula are designed to avoid any dividend being taken into account more than once. The other symbols are -

TD - the total amount of the dividends paid or to be paid under the resolution under which the current dividend is paid;
CFD - committed future dividends (a defined term - see earlier notes); and
SDD - same day dividends, i.e., dividends paid or to be paid under a different resolution, but having the same reckoning day (also a defined term discussed in earlier notes) as the current dividend.

Subsection (3) contains the rules for determining the second provisional required franking amount. It operates only where a company has opted to over-frank dividends at a particular time on the basis of anticipated franking credits and has, at that time, committed future dividends. In these cases, the provisional required franking amount under subsection (3) is calculated by the formula -

CD * (EFA)/(EFD)

where,

CD is the amount of the dividend for which a provisional required franking amount is being calculated - the current dividend;
EFA is the earlier franked amount, i.e., the number of dollars in the franked amount of the earlier (over-franked) franked dividend; and
EFD is the number of dollars in the amount of the earlier (over-franked) franked dividend.

This formula will ensure that, where the current dividend was a committed future dividend at the time of payment of the earlier dividend, and the earlier dividend was over-franked, the current dividend is required to be franked to the same extent.

Subsection (4) sets the third provisional required franking amount. It will require equal franking of dividends paid (or which are commenced to be paid) on the same day. The provisional required franking amount under this rule is calculated in accordance with the formula -

CD * (OFA)/(OFD)

where,

CD is the amount of the dividend for which a provisional required franking amount is being calculated - the current dividend.
OFA is the number of dollars in the franked amount of the other dividend as explained below; and
OFD is the number of dollars in the amount of the other dividend.

The provisional required franking amount under the subsection also applies only in restricted circumstances, namely, where -

a franked dividend other than the current dividend is paid on the reckoning day (a defined term) for the current dividend;
the other dividend and the current dividend are not paid under the same resolution;
the reckoning day for the other dividend is the same as the reckoning day for the current dividend; and
the required franking amount for that other franked dividend, calculated without regard to this subsection, is less than the franked amount of that other franked dividend.

Example

The following examples may help to illustrate how the required franking amount rules will operate. In this example, a company has a franking surplus on 1 February of $50 and intends to pay a dividend on that day of $80 (the "current dividend"). If the company has no other dividends to pay on that day, the rules outlined in subsection (2) would give a provisional required franking amount of $50, calculated as follows -

$80 * (50 (the franking surplus))/(80 (the total dividends and committed future dividends))

.

If the company had committed future dividends, e.g., on preference shares, of, say, $20, the provisional required franking amount under subsection (2) would become $40, calculated as follows -

$80 * (50)/(100)

.

If, however, the $80 current dividend had been a committed future dividend at a time earlier in the year when another dividend had been paid and that dividend had been over-franked, another provisional required franking amount would arise under subsection (4). If, say, $80 of the earlier dividend had been franked, and the dividend had been $100, the provisional required franking amount under subsection (4) would be $64, calculated as follows -

($80 (the "current dividend")) * (80 (the franked amount of the earlier dividend))/(100 (the amount of the earlier dividend))

. In this case, $64 would be the required franking amount for the $80 current dividend by the operation of subsection (1), i.e., the greater of the two amounts.

If, in this example, the company had another dividend of $100 to pay on the same day as the current dividend, the provisional required franking amounts under the respective subsections would be as follows -

under subsection (2)
$20 calculated as follows -

$80 * (50 (the franking surplus))/(200 (the total of the current dividend, the same day dividend and the future committed dividend))

;
under subsection (4)
$64, as per the earlier calculation;
under subsection (3)
If $25 of the other dividend of $100 was franked, subsection (3) would not apply to the $80 current dividend as the other dividend would not be over-franked, its required franking amount being $25 under subsection (1), i.e.,

$100 * (50)/(200)

. If, however, the other dividend was over-franked, say to $90, the $80 dividend would have a provisional required franking amount under subsection (4) of $72, calculated as follows -

$80 * (90 (the franked amount of the other dividend))/(100 (the amount of the other dividend))

.

In this case, subsection (1) would operate to give the $80 dividend a required franking amount of $72, being the greatest of the three provisional required franking amounts.

Division 5: Franking of Dividends

Subdivision A: Franking

The various formulae in Division 4 which have just been discussed set the required franking amount in relation to a dividend. Division 5 contains the operative provisions as regards franking of dividends.

Section 160AQF: What constitutes franking

Subsection 160AQF(1) sets out the requirements for a company to frank the dividends it pays. By paragraphs (a) and (b), it applies where a frankable dividend is paid by a company which is a resident at the time of payment and the company has made a declaration that the dividend, or each of the dividends where more than one is paid, is franked to the percentage specified in the declaration. In that case, the dividend, or each of the dividends, is franked to the extent calculated by applying the percentage specified in the declaration to the dividend (or each of the dividends) in order to determine the franked amount of the dividend.

By paragraph (c), where the dividend (referred to as the "current dividend") is paid under a resolution (see earlier notes on the definition of this term and on section 160APF) -

the declaration must be made before the reckoning day for the current dividend, i.e., before the date of payment where only one dividend is paid under the resolution, and before the date of payment of the first dividend under the resolution where more than one dividend is paid under it (subparagraph (i)); and
the declaration must specify the same percentage for each of the dividends to which the resolution relates (subparagraph (ii)).

By paragraph (d), where the current dividend is not paid under a resolution, the company must make a declaration before the reckoning day for the current dividend that the current dividend is a franked dividend to the extent of a percentage specified in the declaration.

The percentage specified in a declaration cannot exceed 100 per cent. Where a percentage is correctly specified, the current dividend is taken to have been franked to the extent of the amount calculated in accordance with the formula,

CD * SP

where,

CD is the amount of the current dividend; and
SP is the percentage specified in the declaration in relation to the dividend.

Subsection (2) provides that a declaration made for the purpose of setting the franked amount in relation to a dividend cannot be varied or revoked. Thus, where a company has franked dividends in accordance with subsection (1) and later finds that due to later franking credits and debits it could have franked those dividends to a greater or lesser extent, it will not be able to change the franking declaration for the dividends. Once properly made, a declaration is immutable.

Section 160AQG: Combined class of dividends to be equally franked

Section 160AQG addresses the situation of dividends being declared, and paid, on only some of the shares of a particular class. A "class of shares" is defined in section 160APE - see earlier notes. The section is designed to prevent unequal franking of dividends which are really part of the one distribution on the same class of shares. For example, with suitable authority in its Articles, a company with 200 ordinary shares could declare and pay an unfranked dividend on shares numbered 1 to 100 at the time when its franking surplus is quite low and then later, when its franking surplus is relatively high, it could declare and pay a franked dividend on shares numbered 101 to 200.

Section 160AQG counters any such device by defining, in subsection (1), the concept of a combined class of dividends and providing, in subsection (2), that dividends constituting a combined class are to be taken for the purposes of section 160AQF to have been paid under the resolution under which the first of those dividends was paid and not under any other resolution.

The effect of the section is to ensure that all dividends paid on any one class of shares (being dividends paid in relation to a single distribution of profits) are franked to the same extent. It achieves this by treating all dividends paid during a franking year as effectively being the one distribution where -

the dividends are paid in respect of the same class of shares (paragraph (a));
each of the dividends is paid under a resolution, but not all under the same resolution (paragraph (b)):
under each resolution, dividends are to be paid to only some of the relevant shareholders (paragraph (e)).

Because of the way section 160AQF operates (see earlier above) this provision will ensure that all the dividends concerned are franked to the percentage (if any) specified in the franking declaration (if any) made for the first of those dividends. In the example given above, all the dividends would, by the combined operation of sections 160AQF and 160AQG, be unfranked.

These provisions are of particular relevance in relation to section 160APE (see earlier notes) and will operate in conjunction with that section to prevent companies from nominally breaking up shares into different classes and unequally franking the dividends paid on them.

However, section 160AQG will not require equal franking of genuinely different distributions in relation to a particular class of shares, unless dividends under those distributions are payable to only some of the eligible shareholders. Thus, an interim dividend will generally not be required to be franked to the same extent as a final dividend by section 160AQG.

Section 160AQH: Company to give dividend statement to shareholders

Section 160AQH requires a company to provide its shareholders with a dividend statement. A company that is a resident at the time of payment of a frankable dividend to a shareholder in the company is to give to the shareholder, by the time of payment of the dividend, a statement setting out:

if the dividend is not a franked dividend - a declaration to that effect (paragraph (a)); or
if the dividend is a franked dividend, details of

-
the franked amount of the dividend (subparagraph (i));
-
the unfranked amount of the dividend (subparagraph (ii));
-
the extra amount that is to be included in the shareholder's assessable income consequent on receipt of a franked dividend under section 160AQT (even if that section does not apply to the particular dividend). This is, in effect, the amount of the "imputation credit" attached to the dividend (subparagraph (b)(iii)); and
-
any amount of dividend withholding tax deducted from the dividend (subparagraph (iv)).

The dividend statement is required to be in the form approved by the Commissioner and, by paragraph (c), must show such other information as the Commissioner may require to be shown.

Where a statement given under this section is incorrect in any material particular, a company may be liable to pay a penalty under proposed new section 160ARY (see later notes).

Subdivision B: Franking Deficit Tax

Section 160AQJ: Liability to franking deficit tax

If, during a franking year, a company pays franked dividends to its shareholders in excess of its franking surplus for the year, the company will be liable to pay franking deficit tax under section 160AQJ. The tax is not a penalty, but merely a payment required to make good the amount imputed to shareholders which exceeds the amount available to be imputed. Reflecting its nature as a prepayment of company tax which has been prematurely imputed to shareholders, the franking deficit tax payable by a company under section 160AQJ will be available to offset later company tax payable by the company under proposed Subdivision C (see notes below).

Where a company has a franking deficit at the end of a franking year, the company is liable to pay tax equal to the amount calculated in accordance with the formula,

FD * (CR)/(1- CR)

where,

CR is the applicable general company tax rate; and
FD is the amount of the franking deficit.

At the company tax rate of 49 per cent to apply to income of the 1986-87 year of income, the fraction CR/(1-CR) will be 49/51 and will thus convert a franking deficit back to an equivalent amount of company tax that effectively has been prematurely imputed to shareholders.

Under provisions explained later -

franking deficit tax is payable by the last day of the month following the end of a company's franking year (proposed new section 160ARU); and
where a dividend was over-franked during a franking year and, at the end of that year, a franking deficit exists of more than 10 per cent of the franking credits of the company for that franking year, the company may be liable to a penalty by way of additional tax (proposed new section ARX).

Subdivision C: Franking Deficit Tax to Offset Company Tax

Subdivision C of Division 5 of Part IIIAA - containing proposed new sections 160AQK to 160AQS - provides the mechanism by which a company's liability to pay franking deficit tax for a franking year may be offset against the company's subsequent liability to pay company tax.

A company is to be entitled to offset the amount of franking deficit tax which it is liable to pay against company tax, reduced by any foreign tax credit allowable, for eligible years of income in which the company is sufficiently resident. The offset may be made against a liability to pay company tax, or an increased liability to pay company tax (in the case of an amended assessment), which is raised under an assessment issued after the end of the franking year in which the deficit concerned arose. In this way, the offset will not be available against company tax which has given rise to a franking credit in the franking year for which the franking deficit tax is payable, but will be able to be offset against a company tax assessment for the year of tax corresponding to the franking year that is issued after the end of that year.

The amount of an offset entitlement is to be determined by the Commissioner and notified to the company in writing. It is expected that notice of an offset determination will normally be included in the notice of assessment against which it is allowed. A determination is not to form part of an assessment, and is to be subject to amendment by the Commissioner at any time. Offset determinations are to be subject to the same review and appeal procedures applicable to company tax assessments.

The Commissioner is to be authorised to recover the amount of an offset to the extent it exceeds the amount, as determined by an amended determination, to which a company is entitled, as if it were company tax due and payable. The Commissioner will also be required to refund, or to apply as a credit against an amount of any other tax payable by the company, the amount of company tax which has been overpaid where a previously determined offset amount is increased by amendment.

Franking deficit tax may not be offset against company tax instalments payable, but may be taken into account in any application for variation of such instalments - see later notes on clause 15 of the Bill.

Section 160AQK: Entitlement to offset

Subsection (1) requires the Commissioner to determine the amount of the offset to which a company is entitled.

An offset entitlement arises where a company has become liable to pay an amount of franking deficit tax for a franking year (paragraph (a)) and, after the end of that franking year, the company is served with either a notice of an original company tax assessment or a notice of an amended company tax assessment increasing the company's tax liability for an eligible year in which the company was sufficiently resident (subparagraph (b)(i) and (ii)).

The amount of the company's offset entitlement determined by the Commissioner is to be the lesser of -

the amount of the franking deficit tax imposed, reduced by any amount that has previously been applied as an offset (paragraph (c)); and
the amount of company tax assessed, or increased company tax (in the case of an amended company tax assessment), reduced by any foreign tax credits allowable (paragraph (d)).

Subsection (2) is the operative provision which reduces a company's liability to pay company tax, or increased company tax, by the amount of the offset which the Commissioner determines under subsection (1).

Section 160AQL: Amendment of determination

Subsection (1) authorises the Commissioner to amend an offset determination, at any time, in such manner as is necessary.

Subsection (2) is a technical measure that ensures that an amended determination is to be treated for the purposes of the Principal Act as if it were an original offset determination.

Section 160AQM: Notice of determination

By subsection (1), the Commissioner is required to serve notice on a company, in writing, of an offset determination.

Subsection (2) permits the notice of an offset determination to be included in a notice of assessment, which could be expected to be the most common method of service of the notice.

Section 160AQN: Determination not part of assessment

By this section, an offset determination will not form part of an assessment. This is because the determination of an offset entitlement will carry its own rights of appeal under the proposed section 160AQQ. This treatment is consistent with the provisions operating in relation to foreign tax credits under Division 19 of Part III of the Principal Act.

Section 160AQP: Evidence of determination

This section specifies the evidentiary value of certain documents and copies of documents issued or given, or purporting to be issued or given, under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner. The production of a notice of an offset determination or document purporting to be a copy of such a notice is to be conclusive evidence of the due making of the determination and that the determination is correct, except in proceedings relating to an appeal against the determination.

Section 160AQQ: Reviews and appeals

Subsection (1) enables the machinery provisions of the Principal Act concerning the review of assessments and appeals against decisions of the Commissioner to apply in relation to offset determinations. A company dissatisfied with an offset determination or a decision concerning an offset determination will have the same rights of review and appeal as it would have if the offset determination were an assessment.

Subsection (2) stipulates that a liability to pay any amount of tax that may be affected by an offset determination is not to be held in abeyance pending the outcome of a request for review of the determination or an appeal against a decision concerning the determination.

Section 160AQR: Recovery of excess offsets

In the event that an amended determination is made to reduce an offset previously determined, this section enables the Commissioner to apply the general collection and recovery provisions of the Principal Act to recover the amount by which the previously determined offset exceeds the amended offset. The excess amount is to be treated for the purposes of the collection and recovery provisions of the Principal Act as if it were company tax due and payable by the company.

Section 160AQS: Refunds of amounts overpaid

In the event that an amended determination is made to increase the offset previously determined, this section provides for section 172 of the Principal Act to apply as if the determination were an assessment. An increased offset will reduce a company's tax liability and, to the extent that company tax paid exceeds the reduced company tax liability, there will have been an overpayment of company tax.

Section 172, as extended by this section, will authorise the Commissioner to apply any amount of tax overpaid, arising as a consequence of the amendment of an offset determination, against any other tax liability of the taxpayer and to refund any amount not so applied. The section will also require that, where additional tax for late payment has been imposed under section 207 or where interest payable has been imposed under section 170AA, such additional tax, or interest, is to be recalculated as though the amount by which tax has been reduced as a result of the amendment of a determination was never payable.

Division 6: Tax Effects for Shareholders

Subdivision A: Assessable Income of Certain Shareholders

Section 160AQT: Extra amount to be included in assessable income where franked dividend paid

Where a franked dividend is paid to a shareholder who is a resident individual, or a partnership or trustee of a trust estate, the shareholder will be required to include the imputed company tax attached to the dividend as assessable income, and will be entitled to a rebate, or to pass on a rebate in the case of a partnership or trust, of the amount so included.

Section 160AQT sets out the circumstances in which an amount of imputed company tax is to be included as assessable income, and the amount to be so included. The circumstances are where -

a franked dividend is paid to a shareholder (paragraph (a));
the shareholder is a natural person who is a resident at the time of payment of the dividend, a trustee or a partnership (paragraph (b)); and
the dividend is not exempt income of the shareholder (paragraph (c)).

Where these circumstances exist, the shareholder is required by subsection (1) to include an amount calculated, on the basis of the company tax rate to apply to income of the 1986-87 year of income, by applying to the franked amount of the dividend the fraction 49/51.

Subsection (2) makes it clear that an amount included in a shareholder's assessable income under subsection (1) is additional to any other amount required to be included in the shareholder's assessable income in relation to the dividend under any other provision of the Principal Act.

Subsection (3) is a technical provision which is designed to ensure that, for the purposes of the Principal Act, an amount included in assessable income of a shareholder under subsection (1) is not to be treated as part of the franked dividend concerned, or otherwise assimilated to income from a dividend for any purpose of the Principal Act.

Subdivision B: Franking Rebate for Certain Shareholders

Section 160AQU: Franking rebate for certain shareholders

Section 160AQU provides that where, under proposed section 160AQT, an amount is included in the assessable income of a shareholder of a year of income (paragraph (a)), the shareholder is entitled to a rebate of tax if the shareholder is a natural person or is -

the trustee of a superannuation fund who is liable to be assessed under section 121CC, 121DA or 121DAB of the Principal Act in respect of the investment income or taxable income of the fund (sub-subparagraph (b)(ii)(A)); or
the trustee of an ineligible approved deposit fund who is liable to be assessed under section 121DAA of the Principal Act in respect of income of the fund (subparagraph (b)(ii)(B)).

The amount of rebate will be equal to the amount included as assessable income of the shareholder under section 160AQT. Thus, if the franked amount of a dividend received by a shareholder to whom this section applies is $51, an extra amount of $49 representing the imputation credit attached to the franked dividend is included in the shareholder's assessable income (making a total of $100) and the shareholder is entitled to a rebate of tax under section 160AQU of $49. Where the shareholder's marginal rate of tax is 49 per cent, the shareholder's tax liability in respect of the total of the dividend and the extra amount included in assessable income will be completely offset by the rebate. Where the shareholder's marginal rate of tax is less than 49 per cent, the excess amount of the rebate will be available to offset tax on other income, including unfranked dividends and taxable capital gains, but cannot be refunded where the amount available exceeds such tax.

Division 7: Dividends Paid to Trusts and Partnerships

Division 7 contains the operative provisions to ensure that, to the maximum extent possible, franked dividends received indirectly through partnerships and trusts are treated in the hands of partners of beneficiaries in the way that such dividends would have been dealt with under Division 6 if received directly.

Subdivision A: Preliminary

Section 160AQV: Division to be applied separately to each dividend

Section 160AQV is a drafting measure to make it clear that, in the case of franked dividends flowing through partnerships and trusts, each franked dividend is to be dealt with separately. The definitions of "potential rebate amount" and "flow-on franking amount" contained in section 160APA (see earlier notes) are drafted on that basis.

Section 160AQW: Allocation of section 160AQT amount

As indicated in the earlier notes, a trustee of a trust estate or a partnership that is paid a franked dividend is required, under section AQT, to include an extra amount as assessable income, calculated by applying the fraction 49/51 to the franked amount of the dividend. Under the existing law contained in Division 5 and Division 6 of Part III of the Principal Act relating to the assessment of the net income of partnerships and trusts, this extra amount would not necessarily be included in the relevant share of the net income of a beneficiary or partner that shares in the franked dividend.

Subsection (1) makes it clear that, notwithstanding the provisions of Divisions 5 and 6 of Part III, a section 160AQT amount is to be included in any relevant trust amounts and partnership amounts for the beneficiaries, trustees or partners that share in the franked dividend concerned. The effect of the subsection is that the component of the net income of the trust estate that is referable to the section 160AQT amount is included in the shares of the net income of the partnership or trust estate of those partners or beneficiaries (and trustees assessed in relation to the net income) who are assessed in relation to any part of the franked dividend to which the section 160AQT amount relates, and not to any beneficiary or trustee who is not so assessed. This rule will also apply to a non-resident beneficiary or partner who, because of the operation of section 128D, does not have an amount attributable to a franked dividend included in assessable income.

Subsection (2) defines the term "section 160AQT amount" used in subsection 160AQW(1) as follows -

an amount included under section 160AQT in the assessable income of a partnership or trust estate (paragraph (a)); or
an amount attributable to an amount so included (paragraph (b)). This paragraph will ensure that, where a partnership or trust estate derives franked dividend income indirectly through other trust estates or a combination of partnerships and trust estates, the amount included in the assessable income of the partnership or trust that is attributable to the section 160AQT amount referred to in paragraph (a) is subject to the allocation rule specified in subsection 160AQW(1).

Subdivision B: Rebates for Beneficiaries, Trusts and Partners

Section 160AQX: Franking rebate for certain beneficiaries

Section 160AQX will allow a rebate of tax in relation to a franked dividend received by a beneficiary through a trust estate. The section grants an entitlement to a rebate of tax of an amount equal to the "potential rebate amount" (a term defined in section 160APA - see earlier notes) in relation to the beneficiary's share of the net income of the trust estate. The calculation of the potential rebate amount is also explained earlier in these notes.

A beneficiary is entitled to a rebate of tax for a year of income if the conditions specified in paragraphs (a), (b) and (c) of section 160AQX are satisfied.

Paragraph (a) requires a "trust amount" - a term also defined in new section 160APA - to be included in the assessable income of a taxpayer of a year of income. In general, this requirement will be satisfied where a beneficiary is assessed in respect of a share of the net income of a trust estate under section 97, 98A or 100 of the Principal Act.

Paragraph (b) is to the effect that, to be entitled to a rebate of tax, the taxpayer must be a natural person other than a trustee.

Paragraph (c) requires that there be a "flow-on franking amount" - a term also defined in new section 160APA - in relation to the trust amount referred to in paragraph (a). There will be a flow-on franking amount as specified in paragraph (c) if the trust amount includes an amount attributable to a franked dividend. If the beneficiary is a non-resident in respect of the franked dividend, section 128D of the Principal Act, as proposed to be amended by clause 12 of this Bill, will apply and there will not be a flow-on franking amount for that franked dividend. Accordingly, non-resident beneficiaries will not qualify for the rebate of tax under this section.

Section 160AQY: Franking rebate in trustee's assessment

Section 160AQY operates, in much the same way as section 160AQX, to allow a rebate of tax where a trustee is liable to be assessed under section 98, 99 or 99A of the Principal Act on a trust amount (paragraph (a)). Section 160AQY does not apply where a trustee is assessed under subsection 98(3) in respect of a beneficiary which is a non-resident company on the last day of a year of income.

By paragraph (b), there must be a flow-on franking amount in relation to the trust amount for entitlement to a rebate to arise. As indicated in relation to paragraph 160AQX(c) above, where an amount attributable to a franked dividend would, but for new paragraph 128(B)(3)(ga), be subject to withholding tax, that amount is not included in assessable income because of the operation of section 128D of the Principal Act, as proposed to be amended by clause 12 of this Bill. Trustees who are assessed under section 98 in relation to non-residents are not liable to tax on income to which section 128D applies and thus there is no flow-on franking amount in such cases. However, section 128D does not exclude from assessable income amounts that are assessed to a trustee under section 99 or 99A and in these cases a flow-on franking amount will exist, and accordingly give rise to a rebate entitlement under this section.

The broad effect of section 160AQY is that a trustee who is assessed on a trust amount that includes a flow-on franking amount will be entitled to a rebate of tax equal to the potential rebate amount in relation to that trust amount if:

the trustee is assessed under sections 99 or 99A; or
the trustee is assessed under section 98 - other than subsection 98(3) - in relation to a beneficiary who is a resident, in respect of the flow-on franking amount to which the potential rebate amount relates.

Section 160AQZ: Franking rebate for partners

Section 160AQZ operates, in much the same way as section 160AQX, to provide for a rebate of tax where a partner, being a natural person other than a trustee, is assessed in relation to a partnership amount that includes a flow-on franking amount. The amount of the rebate is the amount of the potential rebate amount in relation to the partnership amount.

A partner who is a non-resident in relation to income attributable to a franked dividend will not be eligible for a rebate under this section because there will not be a flow-on franking amount in relation to the partnership amount.

Subdivision C: Adjustments in relation to section 160AQT for companies and non-residents

Section 160AR: Adjustments where franking credit arises

A company shareholder that is paid a franked dividend is not required under section 160AQT to include the extra amount in relation to that dividend as assessable income.

Section 160AR will ensure that, where a company has received a franked dividend through a trust or partnership, the company is not disadvantaged by having the extra amount included in the partnership or trust amount by virtue of the operation of proposed section 160AQW.

Subsection (1) therefore provides for the allowance of a deduction to a company in a year of income where -

a trust amount is included in the assessable income of the company for a year of income (paragraph (a)); and
a franking credit arises under proposed section 160APQ in relation to the trust amount (paragraph (b)).

The amount of the deduction is the lesser of the potential rebate amount in relation to the trust amount or the trust amount.

Subsection (2) will allow a deduction to a company for a year of income where a partnership amount is included in (or, in the case of a partnership loss, allowable as a deduction from) assessable income, and a franking credit has arisen under proposed section 160APQ in relation to the partnership amount. The amount of the deduction is the potential rebate amount in relation to the partnership amount.

Section 160ARA: Adjustment for non-resident beneficiary

A non-resident who derives income consisting of a dividend is subject to withholding tax under section 128B of the Principal Act. Under the amendments proposed by clauses 11 and 12 of this Bill, section 128B will not apply to the franked amount of a dividend, and section 128D ensures that no further liability to tax will arise in relation to that franked part of the dividend. A non-resident is not required to include the extra amount under section 160AQT as assessable income.

Proposed new sections 160ARA, 160ARB and 160ARD will ensure that a non-resident beneficiary or partner (or a trustee assessed in respect of a non-resident) will not be disadvantaged by the inclusion of the extra amount under new section 160AQT in the relevant trust or partnership amount. Section 128D will operate to exclude the income attributable to a franked dividend from assessable income of a non-resident beneficiary or partner.

Section 160ARA provides for the allowance of a deduction to a taxpayer, being a company or a natural person (but not a trustee), if a trust amount is included in the assessable income of the taxpayer of a year of income and that amount would, but for section 128D, include withholding income. The term "withholding income" is defined in new section 160APA to mean income to which section 128B of the Principal Act would apply but for the proposed new paragraph 128B(3)(ga). In essence, withholding income is income that is derived by a non-resident and is attributable to a franked dividend. Section 160ARA will allow a deduction where a trust amount would include withholding income but for the operation of section 128D. The deduction allowable under section 160ARA is the lesser of the trust amount and the amount that would be the potential rebate amount if section 128D did not apply to the withholding income.

Section 160ARB: Adjustment where trustee assessed for non-resident beneficiary

Section 160ARB will reduce the amount assessed to a trustee who is liable to be assessed under section 98 of the Principal Act on a trust amount that would, but for section 128D, include withholding income (i.e., income attributable to a franked dividend derived by a non-resident). The section, like section 160ARA, will ensure that a trustee is not assessed on the section 160AQT amount included in the share of the net income of the trust estate on which the trustee is assessed on behalf of a non-resident beneficiary.

The reduction of the trust amount under section 160ARB is the amount that would be the potential rebate amount in relation to the trust amount if section 128D did not apply. The section will apply where the non-resident is a company or an individual.

Section 160ARC: Adjustment where trustee assessed for company

As indicated earlier, a company is not required to include an extra amount under section 160AQT in its assessable income in relation to franked dividends derived. Where a trustee is assessed in respect of a company beneficiary under subsection 98(3) of the Principal Act, section 160ARC provides for the same result to be achieved by reducing the amount that would otherwise be assessed to the trustee by any section 160AQT amount included in the share of the net income of the trust in respect of which the trustee is liable to be assessed. Section 160ARC operates to so reduce a trust amount that is assessed to a trustee under subsection 98(3) if it includes a flow-on franking amount. The amount of the reduction is so much of the potential rebate amount in relation to the trust amount as does not exceed the trust amount.

Section 160ARC will not apply where there is no flow-on franking amount included in the trust amount. This will occur where the company in respect of which the trustee is assessed was a non-resident in relation to a franked dividend. In that event the reduction of the trust amount is provided under section 160ARB. In practice, section 160ARC will apply only in a situation where, in relation to a particular dividend, the company was a resident, but had become a non-resident by the last day of the year of income.

Section 160ARD: Adjustment for non-resident partner

Section 160ARD operates in much the same way as section 160ARA, to allow a deduction to a taxpayer, being a company or a natural person (but not a trustee), if a partnership amount is included in the assessable income of the taxpayer of a year of income and that amount would, but for section 128D, include withholding income. The section will ensure that a non-resident partner is not assessed in respect of a section 160AQT amount included in the partner's share of the net partnership income or loss. Section 160ARD will allow a deduction to an affected taxpayer of the amount that would be the potential rebate amount in relation to the partnership amount if section 128D did not apply.

Division 8 - Returns and Assessments

Subdivision A - Returns

Section 160ARE: Annual returns

Subsection (1) of this section empowers the Commissioner, by a notice published in the Gazette, to require each company to which the notice applies to furnish a return reconciling its franking amount in relation to a franking year and to furnish with the return a copy of each dividend declaration made under proposed section 160AQF (see earlier notes).

Subsection (2) stipulates that a return required by subsection (1) must be furnished within the time required by the notice, or such further time as the Commissioner allows.

In practice, companies will be required to lodge franking account returns with their annual income tax returns, except where a franking deficit exists at the end of the franking year. In such cases, the franking account return will be required to be lodged by the due date for payment of the franking deficit tax, i.e., the last day of the month following the end of the franking year.

Section 160ARF: Further returns etc.

Under subsection (1) where the Commissioner has, by notice in writing served on a company, required the company to furnish a return in relation to a franking year, the company must comply with the requirement within the time specified in the notice, irrespective of whether the company was required to furnish or has furnished an annual return under proposed section 160ARE or section 160ARF.

Similarly, by subsection (2), where the Commissioner has, by notice in writing served on a company, required the company to furnish a copy of each declaration made under proposed section 160AQF with respect to frankable dividends paid by the company during the period specified in the notice, the company must comply with the requirement within the time specified in the notice, whether or not the company has furnished or is required to furnish those copies under any other provision of Part IIIAA of the Principal Act.

Where a company refuses or fails to comply with a requirement to furnish a return, statutory additional tax is imposed under proposed section 160ARZ. The relevant offence provisions of the Taxation Administration Act 1953 will also extend to non-compliance with the requirements of Part IIIAA.

Section 160ARG: Requirements for returns

Section 160ARG sets out the requirements that must be met in relation to the annual return. An annual return must be in the form provided or authorised by the Commissioner (paragraph (a)), be furnished in accordance with any relevant regulations (paragraph (b)), be signed by or on behalf of the company furnishing the return (paragraph (c)) and must contain any other necessary information called for (paragraph (d)).

Subdivision B - Assessments

Section 160ARH: First return deemed to be an assessment

By this section, where an annual return is furnished pursuant to proposed section 160ARE or 160ARF and no previous return for that year has been furnished and no franking assessment made, the Commissioner will be deemed to have made an assessment, at the time the return is furnished, of both the franking account balance of the company and any franking deficit tax payable by the company for the franking year, as specified in the return. The return will be deemed to be a notice of assessment made under the hand of the Commissioner and served on the company at the time the return is furnished.

Section 160ARJ: Part-year assessment

Subsection (1) authorises the Commissioner to make an assessment, at any time, of the franking account balance of a company at a particular time during a year and, if the company has a franking account deficit at that time, of the franking deficit tax payable by the company.

Subsection (2) specifies that where an assessment is made under subsection (1), the Commissioner is to apply the provisions of Part IIIAA as if the period concerned was a franking year.

Section 160ARK: Default assessment

Where a company has not furnished a return as and when required, the Commissioner will be authorised, by proposed section 160ARK, to make an assessment of the franking account balance of the company and the amount of any over-franking tax payable by the company for the franking year.

Section 160ARL: Assessment of franking additional tax

Where a company is liable to pay franking additional tax under proposed Division 11 of this Part the Commissioner is to make an assessment of the additional tax payable by the company.

Section 160ARM: Notice of franking assessment

Subsection (1) will require the Commissioner to serve a written notice of a franking assessment on the company to which the assessment applies as soon as practicable after the assessment has been made. This requirement will not apply to a deemed assessment that, under section 160ARH, is taken to have been served on the company at the time the return was furnished.

Subsection (2) specifies that a notice under subsection (1) may be included in a notice of any other assessment (for example, a company tax assessment) made in respect of the company under the Principal Act.

Section 160ARN: Amendment of assessment

Where an assessment has been made of a company's franking account balance or of any franking deficit tax or franking additional tax payable, the Commissioner will be authorised to amend the assessment in accordance with the provisions of this section.

The general rule, contained in subsection (1) is that the Commissioner may amend a franking account assessment at any time within 3 years after the original assessment date, as defined in section 160APA.

By subsection (2), the Commissioner will be authorised to amend a franking account assessment after that time, subject to the conditions specified in subsections (3) to (7) of this section.

Subsection (3) applies where a company does not make a full and true disclosure of all the material facts necessary for a franking account assessment to be made, and the Commissioner makes such an assessment. If there is an under-assessment (as defined by paragraph 10(c) of this section), the Commissioner will be authorised to amend the assessment within 6 years after the original assessment date. If, however, the Commissioner is of the opinion that the under-assessment is due to fraud or evasion, the assessment may be amended at any time.

Subsection (4) will preclude the amendment of a franking account assessment after 3 years from the original assessment date where this would reduce the assessment. Paragraph (10)(a) specifies that a reference to reducing a franking account assessment includes either increasing a franking surplus or reducing a franking deficit and the franking deficit tax payable.

Subsection (5) will apply in a similar way to subsection 170(5) of the Principal Act, to allow the Commissioner, in respect of a franking account assessment that has been amended in any particular, to make a further amendment in respect of that particular so as to affect such a reduction in the assessment as is considered just, within 3 years of making the previous amendment.

Subsection (6) authorises the Commissioner to amend a franking account assessment after the 3 year period has elapsed where the company has applied for an amendment within the 3 years and has supplied sufficient information to enable the application to be determined.

Subsection (7) will enable the Commissioner to amend a franking account assessment at any time to -

give effect to a decision on a review or appeal; or
reduce the assessment as a result of consideration of an objection.

Subsection (8) authorises the Commissioner to amend, at any time, an assessment of franking additional tax under Division 11 of this Part.

Subsection (9) deems, except as otherwise provided, an amended franking assessment to be a franking assessment for all purposes of the Principal Act.

Subsection (10) explains, for the purposes of this section, the meaning of the following terms -

by paragraph (a) a reference to reducing a franking account assessment is to mean either increasing a franking surplus or reducing a franking deficit and the franking deficit tax payable, or a combination of those things;
conversely, paragraph (b), is to the effect that a reference to increasing a franking account assessment is to mean either reducing a franking surplus or increasing a franking deficit and the franking deficit tax payable, or a combination of those things;
by paragraph (c), a reference to an under-assessment is to mean a reference to a franking account assessment that would have to be increased in order to be correct.

Section 160ARQ: Validity of assessment

Section 160ARQ is a customary measure in taxation laws. It declares that an assessment - in this case a franking assessment - is valid notwithstanding that a provision of the Principal Act, as amended by this Bill has not been complied with. The purpose is to ensure that in any objection or dispute relating to an assessment, the objector may challenge the correctness of the assessment but not any act or omission of the Commissioner in making the assessment.

Section 160ARR: Refunds of amounts overpaid

By this section, section 172 of the Principal Act is to be applied for the purposes of Part IIIAA as if references in that section to tax included references to franking deficit tax and franking additional tax.

The effect of this section is to treat an amount of franking deficit tax or franking additional tax which has been reduced as a result of an amendment as never having been payable so that there can be no penalty tax imposed on account of its not having been paid. It also requires the Commissioner to refund any such tax overpaid, or apply it against any other Commonwealth taxation liability of the company and refund the balance.

Section 160ARS: Evidence

This section will extend the operation of section 177 of the Principal Act so that it applies to franking assessments or returns under Part IIIAA in the same manner as it applies to other assessments or returns under the Principal Act.

Section 177 of the Principal Act specifies the evidentiary value of certain documents and copies of documents issued or given, or purporting to be issued or given, under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner.

The rules in section 177, as they apply to franking assessments and returns under Part IIIAA, will be as follows -

the production of a notice of franking assessment or a document purporting to be a copy of such a notice is conclusive evidence of the due making of the assessment and that the amounts and all particulars are correct, except in proceedings on review, reference or appeal against the assessment;
the production of a Gazette containing a notice purporting to be issued by the Commissioner is conclusive evidence that the notice was so issued;
the production of a document purporting to be a copy of another document issued by the Commissioner, a Second Commissioner or a Deputy Commissioner is conclusive evidence that the other document was issued; and
the production of a document purporting to be a copy of, or extract from, any franking return or notice of assessment is evidence of the matters in the document to the same extent that the original would be if it were produced.

Division 9: Objections, Reviews and Appeals

Section 160ART: Objections, reviews and appeals

By subsection (1), a company will have rights to object to a franking assessment that are substantially the same as the rights conferred under the Principal Act in relation to income tax assessments.

This will mean that, broadly, a company dissatisfied with a franking assessment may lodge an objection in writing with the Commissioner within 60 days after the notice of assessment is served or deemed to have been served pursuant to section 160ARH. The Commissioner will be required to consider an objection and either disallow it or allow it in whole or in part. The company objecting, if dissatisfied with that decision may, within a further 60 days, request the Commissioner to refer the decision to the Administrative Appeals Tribunal or a specified Supreme Court.

Subsection (2) is an interpretative provision which will ensure that -

by paragraph (a), a reference to the burden of proving that an assessment is excessive in paragraph 190(b) of the Principal Act is to be read as a reference to a franking assessment being incorrect; and
by paragraph (b), franking deficit tax and franking additional tax may be recovered by virtue of section 201 of the Principal Act notwithstanding that a review or appeal is pending in relation to a franking assessment.

Division 10: Collection and Recovery

Section 160ARU: Due date for payment of franking deficit tax

Subject to subsection (2), subsection (1) stipulates the time for payment of franking deficit tax as the last day of the month following the end of a franking year. Franking deficit tax is thus payable whether or not a return has been lodged and an assessment deemed to have been made. The effect of this is that any penalty for unpaid tax under section 207 of the Principal Act, as extended by proposed section 160ARW, begins to accrue on amounts unpaid after that time.

For most companies, the time for payment will be 31 July, but for early balancing companies the due date will be the last day of the month following the month in which their substituted instalment period ends.

Subsection (2) provides that the time for payment of franking deficit tax payable as a result of an assessment raised under section 160ARJ (an assessment relating to part only of a year) is to be the date specified in the relevant notice of assessment.

Section 160ARV: Due date for payment of franking additional tax

Section 160ARV stipulates that franking additional tax under proposed Division 11 (see later notes) is due and payable on the date specified in the notice of assessment of the franking additional tax.

Section 160ARW: Miscellaneous provisions relating to collection and recovery

Subsection (1) will effectively extend the operation of various provisions of the Principal Act to franking deficit tax and franking additional tax. This will be achieved by treating those taxes as if they were "income tax" or "tax", and therefore subject to the provisions of sections 205 (taxpayer leaving Australia), 206 (extension of time and payment by instalments), 207 (penalty for unpaid tax), 208 (tax a debt due to the Commonwealth), 209 (recovery of tax), 213 (temporary business), 214 (substituted service), 215 (liquidators, etc.) and 218 (Commissioner may collect tax from person owing money to taxpayer) of the Principal Act.

Subsection (2) will ensure that where the Commissioner has amended a franking account assessment to increase franking deficit tax payable, any additional tax payable under section 207 of the Principal Act (as extended by subsection (1)) on the unpaid amount of the increased tax resulting from the amendment, will apply at the lower rate under the Taxation (Interest on Overpayments) Act 1983 if that increase is not attributable to a false or misleading statement for which the company is liable to pay additional tax under proposed section 160AS.

Subsection (3) sets the rate of interest applicable under subsection (2) at 14.026 per cent until regulations are made under the Taxation (Interest on Overpayments) Act 1983 to change the rate under that Act.

Division 11: Additional Tax by way of Penalty

Section 160ARX: Penalty for over-franking

As indicated in Part A of this memorandum, a fundamental design of the imputation system contained in this Bill is that imputation credits attached to franked dividends will arise only from income tax that is paid or payable at the company level. The franking deficit tax payable in accordance with section 160AQJ is designed to do no more than ensure that, where imputation credits attached to franked dividends exceed tax paid or payable at the company level - as reflected by a deficit in a franking account at the end of a franking year - the shortfall in company tax paid or payable is made good shortly after the end of that year.

The franking deficit tax is not intended to be a facility by which a company can opt to over-frank dividends to an extent obviously greater than a reasonable estimate of its future franking credits and debits will allow. Reflecting this, section 160ARX provides for the imposition of a penalty of 30 per cent of the franking deficit tax payable at the end of a franking year. Before the penalty can apply, however, certain pre-conditions must exist. These are that the company must have -

a franking deficit at the end of the franking year that is more than 10 per cent of the total of the franking credits that arose during the franking year (paragraph (a)); and
franked a dividend paid during that year to an extend greater than the required franking amount for that dividend (paragraph (b)).

The penalty will not therefore apply where -

a dividend paid during the year has been over-franked, but the franking deficit at the end of the year is not more than 10 per cent of the total of the franking credits during that year; or
the franking deficit at the end of the franking year is greater than 10 per cent of the total of the franking credits for that year, but no over-franking of a dividend occurred during that year. (This situation could arise where a company properly franks a dividend on the basis of the surplus in its franking account at the time of payment of the dividend, but subsequently receives an amended assessment reducing company tax of which it was previously unaware and in relation to which it had not sought an estimated debit determination under section 160AQD that results in a franking deficit at the end of the year.)

By virtue of section 160ASB which is discussed below, the 30 per cent penalty that would otherwise apply where the pre-conditions mentioned above exist, may be remitted in appropriate circumstances. An example could be where a dividend paid during the franking year was over-franked on the basis of a reasonable estimate of future franking credits, but a franking deficit arose at the end of the year because of circumstances beyond the control of the company, e.g., where there is a delay in the issue of its company tax assessment.

Section 160ARY: Penalty for setting out incorrect amounts in dividend statement

By section 160AQH a company will be required to provide shareholders with a dividend statement which specifies whether the dividend is franked and, if so, certain other information in relation to the dividend. Section 160ARY provides for the imposition of a penalty, by way of additional tax, where incorrect amounts are included in a dividend statement.

By subsection (1), penalty tax will be payable where a company gives a dividend statement to a shareholder that is likely to cause the shareholder to believe that -

the amount to be included in the shareholder's assessable income under section 160AQT if that section were to apply (subparagraph (a)(i)) is less than the amount which would actually be required to be included if section 160AQT were to apply (subparagraph (b)(i)); or
the rebate to which the shareholder would be entitled under section 160AQU if that section were to apply (subparagraph (a)(ii)) is greater than the rebate to which the shareholder would actually be entitled if that section were to apply (subparagraph (b)(ii)).

In these circumstances the penalty will be an amount equal to -

half of the amount of the understatement of the section 160AQT amount referred to above; or
the amount of the overstatement of the section 160AQU rebate amount referred to above.

Subsection (2) is an interpretative provision which specifies that, for the purpose of the section, a nil amount is to be taken to be an amount, and a reference to a dividend statement includes a reference to a document which purports to be such.

Section 160ARZ: Penalty for failure to furnish return

Section 160ARZ will impose a penalty equal to double the amount of any franking deficit tax payable by a company for a franking year, if the company refuses or fails to furnish, when required, a return or any information relevant to the affairs of the company in relation to the franking year.

Section 160AS: Penalty for false or misleading statements

Subsection (1) will apply where a company makes a statement to a taxation officer that is false or misleading in a material particular or that, by the omission of some matter, is rendered misleading. If, in such a case, the franking deficit tax properly payable by the company exceeds the tax that would be payable if the statement were correct, the company will be liable to a penalty equal to double the excess.

For the purposes of subsection (1), subsection (2) will define the term "statement" to mean an oral or written statement, or one made on a data processing device or in any other form. In particular, subsection 2 will ensure that a statement contained in an objection against an assessment will be subject to penalty where it is false or misleading. The term will include a statement whether or not furnished in accordance with provisions of the Principal Act, as amended by this Bill, but will not include a statement in a book, document or paper furnished pursuant to paragraph 264(1)(b) of the Principal Act. That paragraph obliges a person, when required by the Commissioner of Taxation, to attend and give evidence and to produce books, documents and other papers in his or her custody or under his or her control. But for this exclusion, a person may have sought to decline to produce books, etc. required on the basis that their production would give rise to the imposition of additional tax for false or misleading information contained in them.

Section 160ASA: Minimum amount of additional tax

By this section, the minimum amount of franking additional tax payable under Division 11 will be $20.

Section 160ASB: Remission of additional tax

By this section, the Commissioner is authorised either before or after making an assessment of franking additional tax, to remit the whole or any part of the franking additional tax payable by a company. The application of this section in relation to the penalty for over-franking is discussed in the notes on section 160ARX.

Division 12 - Records, Information and Tax Agents

Section 160ASC: Company to keep records

This section stipulates that section 262A of the Principal Act applies for the purposes of Part IIIAA subject to the appropriate modifications specified in paragraphs (a) to (d) of the section.

The effect of this section is to require every company to keep records in the English language of matters relevant to ascertaining the company's franking account balance, and to retain those records for a period of at least 7 years. Where a company is required to keep the records referred to above it will be required to keep those records in such a way as to enable the company's franking account balance to be readily ascertained. However, a company is exempted from the requirement to preserve any records where the company has gone into liquidation and has been finally dissolved, or where the Commissioner has notified the company that their preservation is not required.

Section 160ASD: Power of Commissioner to obtain information

This section modifies paragraph 264(1)(b) of the Principal Act so that section 264 may operate for the purposes of Part IIIAA. Section 264 obliges a person, when required by the Commissioner, to provide information, to attend and give evidence, or to produce any books, documents or other papers in the custody or under the control of that person.

Section 160ASE: Tax agents

This section extends the operation of Part VIIA of the Principal Act to a return furnished or objection lodged, for the purposes of Part IIIAA, by a tax agent.

Clause 15: Amount of instalment of tax

This clause will amend section 221AE of the Principal Act by inserting a reference to the operation of proposed new section 160AQK among the matters to which the Commissioner may have regard in determining whether an instalment of tax otherwise payable by a company ought to be reduced and, if so, the amount by which it should be reduced.

Section 221AE provides for the determination of the amount of an instalment of tax payable by a company in a year of income. Under subsection 221AE(2), the Commissioner is empowered to determine, with regard to the purpose of Division 1A of Part VI of the Principal Act and to the particular circumstances referred to in subsection 221AE(3), that a company's tax instalment should either be reduced by an appropriate amount or be not payable. Proposed section 160AQK requires the Commissioner to determine the amount to which a company is entitled as an offset against its company tax liability by reason of its liability to franking deficit tax.

The amendment proposed by this clause will authorise the Commissioner to determine that a company's tax instalment should be reduced because of the company's entitlement to an offset against its company tax liability arising from its liability to franking deficit tax.

Clause 16: Estimated income tax

Under section 221AG of the Principal Act, a company may request the Commissioner to alter the amount of its company tax instalment on the basis of the company's estimate of the amount of tax that will be payable in respect of its taxable income of the income year to which the instalment relates. Under that section, a company is also liable for an additional tax by way of penalty if a reduced instalment is based on an underestimation of the amount of tax payable on the company's taxable income. For these purposes a reference to the amount of tax that is, or will be payable by the company is, by subsection 221AG(8), to be read as a reference to the amount remaining after specified credits have been deducted.

Clause 16 will substitute a new subsection 221AG(8) that includes a reference to a franking deficit tax offset to which a company is or will be entitled under section 160AQK (see earlier notes) as an amount which is to be deducted in calculating the amount of tax payable by a company in respect of its taxable income of a year of income. This change will enable companies which become, or expect to become, liable to pay franking deficit tax for a franking year, to vary instalments which they are, or otherwise would become, liable to pay to take account of the offset to which they will become entitled under section 160AQK.

Clause 17: Interpretation

This clause will amend subsection 251R(7) of the Principal Act to insert references to sections 160AQU, 160AQX, 160AQY and 160AQZ which entitle persons in receipt of franked dividends to a rebate of tax in certain circumstances (see earlier notes on those sections). The amendment will ensure that, in those sections, a reference to tax will not include Medicare levy payable under Part VIIB of the Principal Act, and therefore that the franking rebates allowable under those sections will not offset Medicare levy.

Clause 18: Application of amendments

This clause, which will not amend the Principal Act, specifies the years of income in which, or the time from which, the amendments proposed by various provisions of the Bill will first apply. An explanation of the application provisions is contained in the notes on the clauses to which each of the subclauses of clause 18 apply.

Clause 19: Amendment of assessments

Clause 19, which also will not amend the Principal Act, is a standard measure that will ensure that the Commissioner of Taxation has authority to re-open an income tax assessment made before the Bill becomes law if that should be necessary in order to give effect to the various amendments the Bill contains.

PART IV - REPEAL OF THE INCOME TAX (NON-RESIDENT COMPANIES) ACT 1978

Clause 20: Repeal

The Income Tax (Non-Resident Companies) Act 1978 declares and imposes the rate of tax payable under Division 11B of Part III of the Income Tax Assessment Act 1936 on the reduced taxable income of non-resident companies.

The repeal of the Act proposed by clause 20 is complementary to the repeal of Division 11B of Part III of the Income Tax Assessment Act 1936 which is proposed by clause 10H of the Bill.

Clause 21: Application

Clause 21 is a technical provision to ensure that tax payable under Division 11B of Part III of the Income Tax Assessment Act 1936, which is to be repealed by clause 13, will still be imposed in relation to the 1985-86 year of income and all earlier years so that assessments may be raised in respect of any of those years after this Bill is enacted.

PART V - AMENDMENT OF THE TAXATION ADMINISTRATION ACT 1953

Clause 22: Principal Act

This clause facilitates references to the Taxation Administration Act 1953 which, in Part V, is referred to as "the Principal Act".

Clause 23: Penalty taxes to be alternative to prosecution for certain offences

Subsection 8ZE(1) of the Taxation Administration Act is to the effect that where, but for that subsection, an amount would be payable by a person under a penalty tax provision by reason of an act or omission of the person, and a prosecution is instituted against the person for an offence against certain sections of that Act constituted by the act or omission, that amount is not payable unless and until the prosecution is withdrawn. Subsection 8ZE(2) also ensures that where any amount, or part of an amount, payable under a penalty tax provision has been paid and such a prosecution is instituted, the Commissioner is to refund the amount of penalty tax which has been paid. The penalty tax again becomes payable if the prosecution is withdrawn.

The amendment proposed by clause 23 will extend the definition of "penalty tax provision" appearing in subsection 8ZE(3) of the Taxation Administration Act to include sections 160ARY, 160ARZ and 160AS that are to be inserted in the Income Tax Assessment Act 1936 by the amendment proposed by clause 14 of this Bill.

The amendment will ensure that where an amount is payable by a company as a penalty for setting out incorrect amounts in dividend statements, for failure to furnish a return or information, or for making false or misleading statements, and a prosecution is instituted against the company for an offence against any of the sections of the Taxation Administration Act referred to in subsection 8ZE(1) which is based on the same act or omission, the penalty amount will cease to be payable unless and until the prosecution is withdrawn. Where such a penalty has been paid or a prosecution is commenced, the Commissioner will be required to refund the penalty amount.

Clause 24: Modification of limitation laws applying to the recovery of tax debts

Section 14ZKA of the Taxation Administration Act was enacted in response to a decision of the Full Court of the Queensland Supreme Court that the time limits specified in the Queensland Limitation of Actions Act 1974 for the commencement of proceedings to recover a debt applied, by virtue of section 64 of the Commonwealth Judiciary Act 1903, to proceedings to recover taxation debts to the Commonwealth.

The section modifies limitation laws applying to the recovery of tax debts so that -

where liability for a taxation debt is, or has been, disputed the period during which an action for the recovery of the debt may be commenced is extended so that it is taken to end on the date it would have if it had commenced on the date on which the dispute was finalised; and
a tax debt payable under any of the provisions listed in paragraph 14ZKA(2)(b) of the Taxation Administration Act is not to be taken to be, or to have been, a penalty or a sum by way of penalty (thus ensuring that a six year limitation period applies).

The amendment proposed by clause 24 will add to the provisions listed in paragraph 14ZKA(2)(b) of the Taxation Administration Act, a reference to Division 11 which is included in new Part IIIAA that is proposed to be inserted in the Income Tax Assessment Act 1936 by clause 14 of this Bill.

PART VI - AMENDMENT OF THE TAXATION (INTEREST ON OVERPAYMENTS) ACT 1983

Clause 25: Principal Act

This clause facilitates reference to the Taxation (Interest on Overpayments) Act 1983 which, in Part VI, is referred to as "the Principal Act".

Clause 26: Interpretation

This clause proposes the amendment of the definition of "objection" contained in subsection 3(1) of the Taxation (Interest on Overpayments) Act. The definition is to be extended to include an objection, in accordance with new section 160AQQ, against an offset determination and an objection, in accordance with proposed section 160ART, against a franking assessment. Those sections are discussed in the notes on clause 14 of the Bill.

Clause 27: Entitlement to interest

Section 9 of the Taxation (Interest on Overpayments) Act operates where a person has paid to the Commissioner an amount of relevant tax and the amount paid is, as a result of a decision to which that Act applies (in general, a decision in relation to an objection or appeal against the person's liability to pay that amount or a decision of the Commissioner to amend an assessment other than such a decision made to give effect to a request of the taxpayer) found to be in excess of the amount that is correctly payable. In these circumstances there will be an entitlement to interest in respect of the overpaid amount of tax that, by reason of the adjustment necessary to give effect to the decision, is either refunded to the person or applied against another taxation liability of the person.

Clause 27 proposes to amend section 9 of the Taxation (Interest on Overpayments) Act by inserting 2 additional subsections - subsections (6) and (7). New subsection (6) will treat certain amounts which are overpaid as a result of a relevant decision as having been applied, at a particular time, against another taxation liability of a company as a result of the objection or appeal. The circumstances in which this will occur are where a company has paid an amount of franking deficit tax and has then become entitled to an offset of all or part of that amount under section 160AQK (see notes on clause 14) and, because of the subsequent resolution of an objection or appeal, the company's liability for that franking deficit tax has been reduced.

Such a payment of franking deficit is to be treated as an overpayment, and hence an entitlement to interest will apply, for the period commencing from the later of the date on which the notice of the relevant assessment of franking deficit tax was issued to the company by the Commissioner and the date on which the franking deficit tax was paid, and ending on the date on which the Commissioner serves on the company notice of the offset determination. On the latter date, the payment would be treated as having been applied against the company's income tax liability as a result of the relevant decision. If all or part of the overpaid franking deficit tax has not been offset under section 160AQK, and is refunded or applied against another liability as a result of a decision to which this Act applies, interest will be payable until the day on which the amount is to be refunded or applied.

New subsection (7) confirms that the meaning given to the terms used in subsection (6) is identical to the meaning given to those terms in Part IIIAA which is to be inserted in the Income Tax Assessment Act 1936 by the amendment proposed by clause 14 of this Bill.

INCOME TAX (FRANKING DEFICIT) BILL 1987

This Bill will formally impose tax liability on a company that has a franking deficit at the end of a franking year, as determined under section 160AQJ of the Income Tax Assessment Act 1936. That section is proposed to be inserted in that Act by clause 14 of the Taxation Laws Amendment (Company Distributions) Bill 1987.

Clause 1: Short title

This clause provides for the Act to be cited as the Income Tax (Franking Deficit) Act 1987.

Clause 2: Commencement

By this clause the Act is to come into operation on the day on which it receives the Royal Assent.

Clause 3: Imposition of tax

This clause formally imposes tax payable under proposed section 160AQJ of the Income Tax Assessment Act 1936. The amount of tax payable is ascertained by the application of the formula contained in that section.

INCOME TAX RATES AMENDMENT BILL 1987

This Bill will amend the Income Tax Rates Act 1986 to declare the rates of tax payable by companies and registered organisations, and by trustees of prescribed unit trusts, ineligible approved deposit funds and superannuation funds, for the 1987-88 and subsequent financial years. A further amendment of that Act to be made by this Bill will declare the rate of tax payable by trustees assessed under subsection 98(3) of the Income Tax Assessment Act 1936 in respect of trust income of non-resident company beneficiaries for the 1986-87 and subsequent financial years. .

The declaration of a 49 per cent rate of company tax proposed by this Bill will give effect to one element of the September 1985 tax reform announcement concerning company tax reform - specifically, the alignment from 1 July 1987 of the company tax rate with the maximum personal marginal tax rate. As a consequence of the increase in the tax rate in respect of company income for the 1986-87 income year, the Bill also proposes an increase to 49 per cent in the rate of tax payable by trustees in respect of 1986-87 trust income of non-resident company beneficiaries.

The amendments proposed by this Bill will also reduce the rates of tax payable for the 1987-88 and subsequent financial years by trustees of superannuation funds and ineligible approved deposit funds in consequence of the reductions in the personal income tax rates from 1 July 1987.

Clause 1: Short title, etc

By subclause (1) the amending Act is to be cited as the Income Tax Rates Amendment Act 1987.

Subclause (2) facilitates references to the Income Tax Rates Act 1986 which, in this Bill, is referred to as the Principal Act.

Clause 2: Commencement

By this clause it is proposed that the amending Act will come into operation on the day on which it receives the Royal Assent. But for this clause, the Act would, by virtue of subsection 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

Clause 3: Act to be deemed to be the Act declaring rates of income tax

This clause will amend section 22 of the Income Tax Rates Act 1986 to the effect that it is the Act that declares the rate of tax payable under section 104 of the Income Tax Assessment Act 1936 ("the Assessment Act") for the 1986-87 financial year and all subsequent financial years.

Section 104 of the Assessment Act establishes a liability on certain private companies to pay additional tax in respect of undistributed income ascertained under section 105A. The rate of that additional tax - generally referred to as "Division 7 tax" or "undistributed profits tax" - is 50 per cent in accordance with paragraph 23(3)(b) of the Income Tax Rates Act.

On 10 December 1986 the Government announced as part of a statement on business tax reforms and the proposed dividend imputation arrangements, that Division 7 would be abolished from the 1987-88 financial year, subject to certain transitional arrangements. The amendments proposed by clauses 3 and 10 will ensure that a declaration of a Division 7 rate of tax is made for the 1986-87 financial year and any subsequent financial year in which the foreshadowed transitional arrangements are to operate.

Clause 4: Rates of tax payable by companies

Paragraph (a) of clause 4 will amend section 23 of the Income Tax Rates Act to increase the rate of tax payable by companies, other than companies that are registered organisations, from 46 per cent to 49 per cent.

By paragraph (b), the shading-in threshold of $2,542 in subsection 23(5) that applies in respect of non-profit companies, other than registered organisations, is to be substituted by a threshold of $3,813. The new threshold will mean that for the purpose of calculating the tax payable by a non-profit company, not being a registered organisation, in respect of the company's taxable income of the 1986-87 income year and subsequent income years where the taxable income exceeds $416 but does not exceed $3813, tax payable will be 55 per cent of the excess of the taxable income over $416. Where taxable income exceeds $3813, tax will be payable at the proposed new rate of 49 per cent on the whole of the non-profit company's taxable income.

Clauses 5 and 6: Rate of tax payable by trustees of corporate unit trusts and public trading trusts

Clauses 5 and 6 will amend sections 24 and 25 of the Income Tax Rates Act, respectively, to substitute references to 46 per cent with 49 per cent. Those sections provide for the rate of tax payable by corporate unit trusts (section 24) and public trading trusts (section 25) - collectively referred to as prescribed unit trusts. For the purposes of the imposition, assessment and collection of tax, prescribed unit trusts are treated as companies.

Clause 7: Rates of tax payable by trustees of superannuation funds

Clause 7 will amend section 26 of the Income Tax Rates Act to further reduce the rate of tax payable by trustees of superannuation funds. These changes, to apply for the 1987-88 financial year, are consequential on the second stage of the tax reform changes to the personal income tax rate scale that are to take effect from 1 July 1987.

The rate changes proposed by clause 7 are as follows -

the rate of tax payable by a trustee on income from non-arm's length transactions of employer sponsored superannuation funds and to which section 121CA or 121CB of the Assessment Act applies is to be reduced to 49 per cent (paragraph (a));
the rate of tax payable by a trustee on the investment income of an employer sponsored superannuation fund which fails to comply with certain investment rules and to which section 121CC of the Assessment Act applies is to be reduced to 24 per cent (paragraph (b));
the rate of tax payable on income of superannuation funds which fail to meet any of the tests for exemption but are not funds to which section 121DAB applies, and to which section 121DA of the Assessment Act applies is to be reduced to 49 per cent (paragraph (c)); and
the rate of tax payable on income of superannuation funds which do not meet certain criteria for exemption and to which section 121DAB of the Assessment Act applies is to be reduced to 40 per cent (paragraph (d)).

Clause 8: Rate of tax payable by trustees of ineligible approved deposit funds

Clause 8 will amend section 27 of the Income Tax Rates Act to reduce the rate of tax payable by the trustee on the taxable income of an ineligible approved deposit fund to which section 121DAA of the Assessment Act applies, to 40 per cent.

Clause 9: Rate of tax payable by trustee to whom subsection 98(3) of Assessment Act applies

Clause 9 will amend the Income Tax Rates Act to insert new section 28 that declares the rate of tax payable by a trustee of a trust estate assessed under subsection 98(3) of the Assessment Act in respect of trust income of a non-resident company beneficiary of the trust estate. The rate of tax is to be 49 per cent.

By subclause 10(2), the new 49 per cent rate of tax is to apply for the 1986-87 financial year and all subsequent financial years - that is, in respect of 1986- 87 and subsequent years trust income of a non-resident company beneficiary that is assessed to a trustee under subsection 98(3) of the Assessment Act.

Clause 10: Application of amendments

Clause 10 sets the commencement dates of the new rates of tax to be declared by this Bill. By subclause (1), all the amendments to be made by this Bill, other than the amendment to declare the rate of tax payable by a trustee assessed under subsection 98(3) of the Assessment Act (see notes on clause 9) are to apply for the 1987-88 financial year and all subsequent financial years.


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