INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIAA - FRANKING OF DIVIDENDS  

Division 2 - Franking surplus or deficit  

Subdivision B - General provisions on franking credits  

SECTION 160APPA   RECEIPT OF CERTAIN FRANKED DIVIDENDS BY EXEMPTING COMPANIES  

160APPA(1)   [Class A franking credit arises]  

Subject to this section, if, on a particular day, a class A franked dividend is paid by an exempting company (the first company ) to a shareholder being another exempting company (the second company ) and:


(a) the second company is a resident at the time the dividend is paid; and


(b) either of the following subparagraphs applies:


(i) the first company and the second company are members of the same effectively wholly-owned group of companies;

(ii) the second company holds more than 5% of the shares in the first company (other than finance shares or dividend access shares within the meaning of section 160APHBC or shares that do not carry the right to receive dividends) and it would be reasonable to conclude that the risks involved in, and the opportunities resulting from, holding those shares are substantially borne by, or substantially accrue to, the second company;

there arises on that day a class A franking credit of the second company equal to the class A franked amount of the dividend.

160APPA(2)   [Class C franking credit arises]  

Subject to this section, if, on a particular day, a class C franked dividend is paid by an exempting company (the first company ) to a shareholder being another exempting company (the second company ) and:


(a) the second company is a resident at the time the dividend is paid; and


(b) either of the following subparagraphs applies:


(i) the first company and the second company are members of the same effectively wholly-owned group of companies;

(ii) the second company holds more than 5% of the shares in the first company (other than finance shares or dividend access shares within the meaning of section 160APHBC or shares that do not carry the right to receive dividends) and it would be reasonable to conclude that the risks involved in, and the opportunities resulting from, holding those shares are substantially borne by, or substantially accrue to, the second company;

there arises on that day a class C franking credit of the second company equal to the class C franked amount of the dividend.

160APPA(3)   [Making reasonable conclusion]  

In deciding whether it would be reasonable to conclude as mentioned in subparagraph (1)(b)(ii) or (2)(b)(ii):


(a) regard is to be had to any arrangement in respect of shares (including unissued shares) in the first company (including any derivatives held or issued in connection with those shares); but


(b) no regard is to be had to risks involved in the ownership of shares in the first company that are substantially borne by any person in the person's capacity as a secured creditor.

160APPA(4)   [Where dividend wholly exempt]  

No franking credit arises if the dividend is wholly exempt income of the second company.

160APPA(5)   [When no frankinsg credit]  

If a determination is made under paragraph 160AQCBA(3)(b) or 177EA (5)(b) in respect of the whole of the dividend, no franking credit arises in respect of the dividend.

160APPA(6)   [Reduction of dividend]  

If a determination is made under paragraph 177EA(5)(b) in respect of a part of the dividend, the franking credit that would otherwise arise in respect of the dividend is reduced by the same proportion as that part of the dividend bears to the whole of the dividend.

160APPA(7)   [Formula]  

If the dividend is partly exempt income of the second company, the franking credit arising under subsection (1) or (2) is reduced by the amount worked out by using the formula:


Franking
credit    
× Exempt part of dividend
        Dividend

where:

dividend
means the number of dollars in the total amount of the dividend.

exempt part of dividend
means the number of dollars in the part of the dividend that is exempt income.

franking credit
means the franking credit determined under whichever of subsections (1) and (2) is applicable.

160APPA(8)   [When sec 124ZM disregarded]  

In determining for the purposes of subsection (3) or (7) whether the dividend is wholly or partly exempt income of the second company, section 124ZM (which exempts dividends paid by PDFs) is to be disregarded.

160APPA(9)   [Assets to be held on behalf of life assurance company's shareholders]  

If:


(a) the second company is a life assurance company; and


(b) the assets of the life assurance company from which the dividend was derived were included in the insurance funds of the life assurance company at any time during the period that:


(i) starts at the beginning of the year of income of the life assurance company in which the dividend was paid; and

(ii) ends at the time when the dividend was paid;

no franking credit arises under subsection (1) or (2) in relation to the dividend unless at all times when those assets were included in the insurance funds of the life assurance company during that period they were held on behalf of the life assurance company's shareholders.

160APPA(10)   [Dividend stripping operation]  

No franking credit arises if the dividend was paid as part of a dividend stripping operation.


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