ATO Interpretative Decision
ATO ID 2001/757
Income Tax
Franking Accounts - early payment of company taxFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is a company allowed franking credits for the early payment of company tax if it pays its income tax prior to being liquidated?
Decision
Yes. A company is allowed franking credits under either former section 160APMG of the Income Tax Assessment Act 1936 (ITAA 1936) or section 205-15 of the Income Tax Assessment Act 1997 (ITAA 1997)for the early payment of its income tax prior to its liquidation.
Facts
The taxpayer is a privately owned company with a franking account surplus that had arisen from the payment of income tax and the receipt of franked dividends over many years. The directors want to put the company into voluntary liquidation before the end of the financial year. The directors want to claim an offset for the franking account credits against the final tax liability of the company.
The company intends to extinguish all of its liabilities prior to the completion of the liquidation.
The company will pay the full amount of its income tax for the current and following financial years by the end of the first quarter of the following financial year.
Reasons for Decision
The payment of PAYG instalments does not discharge a company's tax debt. The tax debt is not discharged until the Commissioner actually applies the instalments against the debt. The Commissioner cannot apply instalments against a tax debt until such time as that debt comes into existence, which generally occurs after the completion of the income year. It is the application of the instalments against the tax debt which constitutes payment of that debt. In other words, a debt cannot be discharged until it comes into existence.
Where a company is able to ascertain its final tax liability for an income year prior to the end of that income year, the early payment of company tax will give rise to a franking credit in accordance with former section 160APMG of the ITAA 1936 which applies before 1 July 2002 or section 205-15 of the ITAA 1997, which applies on or after 1 July 2002. This is because the debt would have come into existence at the time that the final tax liability was ascertained, even though that liability was ascertained prior to the end of the income year.
The liquidator of a company is required, in accordance with section 260-45 of the Taxation Administration Act 1953, Schedule 1, to notify the Commissioner within 14 days of being appointed liquidator. The Commissioner is then required to notify the liquidator of the amount of tax due and payable by the company. It is at this point in time that the final tax liability of the company is ascertained, and the tax debt comes into existence. When the liquidator pays this amount, the company will then become entitled to the franking credits under either former section 160APMG of the ITAA 1936 or section 205-15 of the ITAA 1997.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 30 November 2016 | Decision | Include reference to "either former" before section 160APMG.
Include reference to section 205-15 of the ITAA 1997 |
| Reasons for Decision | Delete "However" capitalise W.
Include "former" before section 160APMG and "which applies before 1 July 2002 or section 205-15 of the ITAA 1997, which applies on or after 1 July 2002" after ITAA 1936. Include "under either section 160APMG of the ITAA 1936 or section 205-15 of the ITAA 1997" after credits. |
|
| Legislative References | Insert "Income Tax Assessment Act 1997" and "section 205-15" |
Legislative References:
Income Tax Assessment Act 1936
section 160APMG
section 205-15 Taxation Administration Act 1953
Schedule 1, section 260-45
Keywords
Franking credits
Liquidation
Date reviewed: 28 April 2014
ISSN: 1445-2782
| Date: | Version: | |
| 11 July 2001 | Original statement | |
| You are here | 30 November 2016 | Updated statement |