ATO Interpretative Decision
ATO ID 2006/330
Income Tax
Distribution Statements: allocation of franking credit to frankable distributionFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 public company issue a valid distribution statement under section 202-75 of the Income Tax Assessment Act 1997 (ITAA 1997) after a frankable distribution is paid?
Decision
Yes. Provided the distribution statement evidences the company's decision, if any, to allocate franking credits on or before the date the distribution was made. If the company does not make a decision to allocate franking credits to the distribution, the distribution statement must disclose a franking percentage of zero. Furthermore, if the company does not provide the recipients of the distribution with a distribution statement on or before the date of the distribution, then the company may be guilty of an offence under section 8C of the Taxation Administration Act 1953.
Facts
Company A is a public company and an Australian resident for income tax purposes. Company B holds a security interest ('the security') in Company A, which Company A treats as a debt interest pursuant to Division 974 of the ITAA 1997. On 1 January 2005, Company A makes a payment to Company B in respect of the security.
Company A does not issue a distribution statement on or before the date it makes the payment.
Company A later discovers that the security is in fact an equity interest pursuant to Division 974 of the ITAA 1997, and that the payment to Company B was a frankable 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. This means that 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 provides documentary evidence of a number of important factual issues concerning the making of the frankable distribution. The distribution statement cannot alter the amount of franking credits actually allocated by the company to the distribution.
In this case, Company A did not allocate any franking credits prior to making the distribution, because the distribution was not thought to be a frankable distribution at the time it was made. That is in a technical sense the company had allocated zero franking credits to the frankable distribution. Company A may issue a distribution statement evidencing the amount of franking credits actually attached to the distribution. In this case, given that no decision was made to allocate franking credits to the distribution, the distribution statement must reflect a franking percentage of zero.
Date of decision: 9 November 2006Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
section 202-5
section 202-75
section 202-85
section 203-25
Division 974
section 8C Related ATO Interpretative Decisions
ATO ID 2005/64
ATO ID 2005/65
Keywords
Distributions
Franking credits
Imputation system
Unfranked dividends
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 9 November 2006 | Original statement |
| 13 February 2015 | Updated statement |