INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 205 - Franking accounts, franking deficit tax liabilities and the related tax offset  

Operative provisions  

SECTION 205-70   Tax offset arising from franking deficit tax liabilities  

When does the tax offset arise?

205-70(1)  
A *corporate tax entity is entitled to a *tax offset for an income year for which it satisfies the *residency requirement (the relevant year ) if at least one of the following applies:


(a) the entity has incurred a liability to pay *franking deficit tax in the relevant year;


(b) the entity incurred such a liability in a previous income year for which it did not satisfy the residency requirement, and that liability has not been taken into account in working out a tax offset under this section;


(c) when the entity was last entitled to a tax offset under this section for a previous income year, some of the offset remained after applying section 63-10 (tax offset priority rules).

The amount of the tax offset

205-70(2)  


Work out the amount of the *tax offset for the relevant year as follows: Method statement

Step 1.

Work out the total amount of *franking deficit tax that is covered by paragraph (1)(a).

Then, subject to subsections (5) and (6), reduce so much of it as is attributable to *franking debits to which subsection (8) applies by 30% if that part exceeds 10% of the total amount of *franking credits that arose in the entity ' s *franking account for the relevant year.


Step 2.

Work out the total amount of *franking deficit tax that is covered by paragraph (1)(b) for a previous income year.

Then, subject to subsections (5) and (6), reduce so much of it as is attributable to *franking debits to which subsection (8) applies by 30% if that part exceeds 10% of the total amount of *franking credits that arose in the entity ' s *franking account for that previous income year.


Step 3.

Add up the results of step 2 for all the previous income years covered by paragraph (1)(b).


Step 4.

Work out the remaining amount of a *tax offset covered by paragraph (1)(c).


Step 5.

Add up the results of steps 1, 3 and 4. The result is the *tax offset to which the entity is entitled under this section for the relevant year.

Note:

This method statement is modified for certain late balancing entities: see section 205-70 of the Income Tax (Transitional Provisions) Act 1997 .

Example:

The following apply to a corporate tax entity that satisfies the residency requirement for an income year:

  • · the entity ' s income tax liability for that year would be $100,000 if its tax offsets were disregarded;
  • · for that year, the entity has a tax offset of $60,000 under this section (the franking deficit offset ) and a tax offset of $80,000 in respect of foreign income tax paid by the entity (the foreign income tax offset ).
  • Under section 63-10 (about tax offset priority rules), the foreign income tax offset must be applied before the franking deficit offset is applied. As a result, that offset and $20,000 of the franking deficit offset combine to reduce the entity ' s income tax liability to nil. The remaining $40,000 of the franking deficit offset will be included in a franking deficit offset for the next income year for which the entity satisfies the residency requirement.

    205-70(3)  
    (Repealed by No 58 of 2006)

    Residency requirement

    205-70(4)  
    To determine whether the entity satisfies the *residency requirement for the relevant year, section 205-25 has effect as if each of the following were an event specified in a relevant table for the purposes of that section:


    (a) the entity incurring a liability to pay *franking deficit tax in the relevant year;


    (b) the assessment of the entity ' s income tax liability for the relevant year that is made on the *assessment day for that year. 30% reduction will generally not apply to private company ' s first year of tax liability

    205-70(5)  


    The 30% reductions in steps 1 and 2 of the method statement in subsection (2) do not apply in working out the amount of the *tax offset to which the entity is entitled for the relevant year if:


    (a) the entity is a *private company for the relevant year; and


    (b) if the company did not have the tax offset (but had all its other tax offsets) it would have had an income tax liability for the relevant year; and


    (c) the company has not had an income tax liability for any income year before the relevant year; and


    (d) the amount of the liability referred to in paragraph (b) is at least 90% of the amount of the *deficit in the company ' s *franking account at the end of the relevant year.

    Commissioner ' s discretion

    205-70(6)  


    The 30% reductions in steps 1 and 2 of the method statement in subsection (2) do not apply in working out the amount of the *tax offset to which the entity is entitled for the relevant year if the Commissioner determines in writing, on application by the entity in the *approved form, that the excess referred to in those steps was due to events outside the control of the entity.

    205-70(7)  


    A determination under subsection (6) is not a legislative instrument. Applicable franking debits

    205-70(8)  


    This subsection applies to *franking debits in the *franking account of an entity:


    (a) that arise under table item 1, 3, 5 or 6 in section 205-30 for an income year; and


    (b) if the entity has franking debits covered by paragraph (a) for that income year - that arise under table item 2 in that section for that income year.


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