Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

Division 36 - Tax losses of earlier income years  

Subdivision 36-C - Excess franking offsets  

Operative provision

SECTION 36-55   Converting excess franking offsets into tax loss  

Excess franking offsets

36-55(1)  


An entity that is a *corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if:


(a) the total amount of *tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210-H (except those that are subject to the refundable tax offset rules because of section 67-25 );

exceeds:


(b) the amount of income tax that the entity would have to pay on its taxable income for that year if:


(i) it did not have those tax offsets; and

(ii) it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and

(iii) it did not have any tax offset under section 205-70 ;
but had all its other tax offsets.

The excess is the amount of excess franking offsets .

Note:

Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules.

Example:

For the 2017-18 income year, Company E (which is not a base rate entity) has:

  • · assessable income of $200 (franked distribution of $140 and franking credit of $60); and
  • · $100 of deductions that are allowable.
  • The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules.

    Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30:

    Graphic

    This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year.

    How to work out the amount of the tax loss

    36-55(2)  


    For the purposes of this Act, if:


    (a) an entity has an amount of *excess franking offsets for an income year; and


    (b) the result of applying the following method statement is a positive amount;

    then:


    (c) the entity is taken to have a *tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36-10 , 165-70 , 175-35 or 701-30 ); and


    (d) that year is taken to be a *loss year for the entity if the entity would not otherwise have a tax loss for that year. Method statement


    Step 1.

    Work out the amount (if any) that would have been the entity ' s *tax loss for that year under section 36-10 , 165-70 , 175-35 or 701-30 if the entity ' s *net exempt income for that year (if any) were disregarded.

    Note:

    See section 36-20 for the calculation of net exempt income.


    Step 2.

    Divide the amount of *excess franking offsets by the entity ' s *corporate tax rate for imputation purposes for that year.


    Step 3.

    Add the results of steps 1 and 2.


    Step 4.

    Reduce the result of step 3 by the entity ' s *net exempt income for that year (if any).

    The result of this step is taken to be the entity ' s *tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year.

    Example:

    Assume that company E did not derive any exempt income for the 2017-2018 income year and that it would not otherwise have any tax loss for that year under section 36-10 , 165-70 , 175-35 or 701-30 .

    Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36-15 or 36-17 .


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