INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIAA - FRANKING OF DIVIDENDS  

Division 1 - Interpretation  

SECTION 160APAAAB   NON-SHARE DIVIDENDS NOT FRANKABLE UNLESS PROFITS AVAILABLE  

160APAAAB(1)   [Applications]  

This section applies if:


(a) a company pays a non-share dividend; and


(b) immediately before the payment, the available frankable profits of the company were less than the amount of the non-share dividend.

160APAAAB(2)   [Non-share dividend not frankable]  

If the available frankable profits of the company at the relevant time is nil or negative, the non-share dividend:


(a) is not frankable; and


(b) is not a dividend to which paragraph 160AQF(1)(c) , (1AA)(c) or (1AAA)(c) or 160AQFA(1)(c) or (2)(c) or section 160AQG applies.

Example:

A company has no profits except profits from the revaluation of an asset. It pays a non-share dividend to a non-share equity holder. The non-share dividend is not a frankable dividend because the company's available frankable profits at the time of payment is nil.

Note that dividends from asset revaluation reserves are not frankable because of paragraph (g) of the definition of frankable dividend in section 160APA .

160APAAAB(3)   [Original dividend]  

In any other case, the non-share dividend (the original dividend ) is taken, for the purposes of the relevant provisions, to consist of 2 separate non-share dividends:


(a) a non-share dividend that is a frankable non-share dividend; and


(b) a non-share dividend that:


(i) is not a frankable non-share dividend; and

(ii) is not a dividend to which paragraph 160AQF(1)(c) , (1AA)(c) or (1AAA)(c) or 160AQFA(1)(c) or (2)(c) or section 160AQG applies.

The relevant provisions are sections 45Z to 46M, this Part and any other provision of this Act whose operation depends on this Part.

160APAAAB(4)   [Frankable profits]  

The amount of the non-share dividend referred to in paragraph (3)(a) is equal to the available frankable profits.

160APAAAB(5)   [Difference between original and franked dividends]  

The amount of the non-share dividend referred to in paragraph (3)(b) is the difference between the original dividend and the frankable dividend referred to in paragraph (3)(a).

160APAAAB(6)   [Anticipate frankable profits]  

A company that pays a non-share dividend may anticipate available frankable profits if:


(a) the company:


(i) has announced the payment of; or

(ii) is committed or has resolved (formally or informally) to pay;
share dividends (the committed share dividends ) after payment of the non-share dividend; and


(b) but for this subsection, subsection (2) or (3) would apply to the non-share dividend mentioned in paragraph (a); and


(c) the company's available frankable profits would be greater than nil at the relevant time if the committed share dividends were ignored; and


(d) it is reasonable to expect that available profits will arise after payment of the non-share dividend and before payment of the committed share dividends; and


(e) it is reasonable to expect that, having regard to the profits mentioned in paragraph (d), the amount of the company's adjusted available frankable profits (see subsection (12A)) immediately after each of the committed share dividends is paid will be greater than nil.

The available frankable profits immediately before the company pays the non-share dividend is then the smallest of the amounts of the adjusted available frankable profits mentioned in paragraph (e).

160APAAAB(7)  

160APAAAB(8)   [When class C franking debit arises]  

A class C franking debit arises for a company if:


(a) the company anticipates available frankable profits under subsection (6); and


(b) the available frankable profits of the company are negative:


(i) immediately after the last of the committed share dividends are paid; or

(ii) immediately before the end of the franking year following the franking year in which the non-share dividend is paid;
whichever is the earlier.

160APAAAB(9)   [Class C franking debit]  

The class C franking debit that arises under subsection (8) is equal to the lesser of:


(a) the amount by which the available frankable profits is below zero; and


(b) the franked amount of the non-share dividend.

160APAAAB(10)   [Determining available profits]  

In working out the company's available profits for the purposes of subsections (8) and (9), disregard:


(a) any dividends that:


(i) the company announces, or becomes committed to or resolves (formally or informally) to pay after the payment of the non-share dividend; and

(ii) has not been paid; and


(b) any estimate made by the company under subsection (6) after the non-share dividend is paid.

160APAAAB(11)   [Application to non-share dividends]  

If a company pays a number of non-share dividends at the same time, this section applies as if:


(a) a reference to a non-share dividend were a reference to each of those non-share dividends; and


(b) the reference in paragraph (1)(b) to the amount of the non-share dividend were a reference to the sum of the amounts of the non-share dividends; and


(c) the reference in subsection (4) to the available frankable profits were a reference to the amount worked out using the formula:


Amount of the non-share dividend
Sum of the amounts of all those  
non-share dividends      
×   Available frankable profits


(d) the reference to the amount of the frankable non-share dividend in paragraph (b) of the definition of adjusted expected profits in subsection (7) were a reference to the sum of the amounts of the frankable non-share dividends; and


(e) the reference in paragraph (9)(b) to the franked amount of the non-share dividend were a reference to the sum of the franked amounts of the non-share dividends.

160APAAAB(12)   [Available frankable profits]  

A company's available frankable profits at a particular time in relation to a non-share dividend is the amount worked out using the formula:

Graphic

where:

committed share dividends
means the amount of share dividends the company will make at that time, or after that time, if the company has announced their payment, or is committed or has resolved (formally or informally) to pay them.

maximum frankable amount
means the maximum amount of frankable share dividends that the company could pay at that time having regard to its available profits at that time.

undebited non-share dividends
means the sum of the franked amounts of the non-share dividends that:


(a) were not debited to available profits; and


(b) were paid within the preceding 2 franking years or were paid under the same scheme under which the company pays the non-share dividend.

160APAAAB(12A)   [Amount of company's adjusted available frankable profits]  

A company's adjusted available frankable profits immediately after a committed share dividend is paid is the amount that would be its available frankable profits at that time if all committed share dividends to be paid after that time, and the non-share dividend, were ignored.

160APAAAB(13)   [Definition]  

In this section:

share dividend
means a dividend that is not a non-share dividend.


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