ATO Interpretative Decision
ATO ID 2005/65
Income Tax
Distribution Statements: allocation of franking credit to frankable distributionFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can a corporate tax entity that is a public company allocate a franking credit to a frankable distribution under section 202-5 of the Income Tax Assessment Act 1997 (ITAA 1997) by issuing a distribution statement after a frankable distribution is paid?
Decision
No. A corporate tax entity that is a public company cannot allocate a franking credit to a frankable distribution under section 202-5 of the ITAA 1997 by issuing a distribution statement after a frankable distribution is paid.
Facts
Trading trust is a public trading trust that is a corporate tax entity and an Australian resident for income tax purposes. Its first distribution was paid to its unit-holders on 19 March 2004. A distribution statement was not issued to unit holders on or before this date.
Trading trust provided evidence that it intended to frank this distribution.
Reasons for Decision
Section 202-5 of the ITAA 1997 sets out when and how an entity franks a distribution. Under paragraph 202-5(c) of the ITAA 1997 the entity must allocate a franking credit to the distribution. Furthermore, a public company is required to provide distribution statements on or before the day on which it makes the distribution under section 202-75 of the ITAA 1997.
Consequently, an entity is required to determine the extent to which it intends franking a distribution prior to making the distribution. The distribution statement itself merely represents evidence of this decision to allocate franking credits. As in this case there is no distribution statement that has been issued, other evidence must be examined in order to determine the franking intent at the time the distribution was made.
Trading trust provided evidence that it intended to frank its March distribution to utilise the surplus in its franking account at the time of the distribution to the fullest extent possible.
Therefore, the distribution statement that trading trust issues ought to reflect the earlier decision to allocate franking credits equal to the surplus in its franking account at the time of the distribution, provided this does not result in the franking percentage for a frankable distribution exceeding 100%.
Date of decision: 17 February 2005Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 202-5
section 202-75
Keywords
Distributions
Franked dividends
Franking credits
Imputation system
Partly franked dividends
Date reviewed: 17 December 2014
ISSN: 1445-2782