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ATO Interpretative Decision

ATO ID 2003/447 (Withdrawn)

Income Tax

Declaration regarding the extent of franking of a dividend
FOI status: may be released
  • This ATO ID is withdrawn from the database due to legislative changes to Part IIIAA of the Income Tax Assessment Act 1936 which took effect from 14 September 2006. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions up until that time.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

If a resident company does not make a declaration under subsection 160AQF(1AAA) of the Income Tax Assessment Act 1936 (ITAA 1936) that a dividend is a franked dividend to the extent of a specified percentage, is the dividend an unfranked dividend?

Decision

Yes. If a resident company does not make a declaration under subsection 160AQF(1AAA) of the ITAA 1936 that a dividend is a franked dividend to the extent of a specified percentage, the dividend is an unfranked dividend.

Facts

A resident company paid frankable dividends to their shareholders.

There was an agreement between the shareholders that the dividends would be franked. However, the dividends were not paid under a resolution.

The company did not make a declaration that the dividends paid are to be franked dividends to the extent of a specific percentage.

The company maintains a class C franking account.

The Dividend Distribution Statement provided to each shareholder when the dividends were paid stated that the dividends were unfranked.

Reasons for Decision

Subsection 160AQF(1AAA) of the ITAA 1936 provides that:

•
if a frankable dividend (the 'current dividend') is paid to a shareholder in a company that is a resident at the time of payment, and
•
if the current dividend is not paid under a resolution, and
•
the company makes a declaration before the reckoning day for the current dividend that the current dividend is a class C franked dividend to the extent of a percentage (not exceeding 100%) specified in the declaration;

then the current dividend is taken to have been class C franked to the extent of the amount worked out using the formula:

Current dividend x Specified percentage
Where:
'current dividend' means the amount of the current dividend, and
'specified percentage' means the percentage specified in the declaration in relation to the dividend.

The 'reckoning day' is defined in section 160APA of the ITAA 1936 to be the day on which the dividend is paid.

The company failed to make a declaration for the purposes of subsection 160AQF(1AAA) of the ITAA 1936 as to the extent of a percentage that the dividend was a class C franked dividend. The percentage specified in the declaration is used to work out the franked amount of the dividend. As no percentage has been specified there is no franked amount of the dividend.

Section 160APA of the ITAA 1936 defines an 'unfranked dividend' as a dividend no part of which has been franked in accordance with section 160AQF of the ITAA 1936.

Accordingly, as the company has not made a declaration as required under subsection 160AQF(1AAA) of the ITAA 1936 that a dividend is a franked dividend to the extent of a specified percentage, the dividend is an unfranked dividend.

Date of decision:  20 May 2003

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   section 160APA
   section 160 AQF
   subsection 160AQF(1AAA)

Keywords
Franked dividends
Franking credits

Business Line:  Finance and Investment Centre of Expertise

Date of publication:  20 June 2003

ISSN: 1445-2782

history
  Date: Version:
  20 May 2003 Original statement
You are here 20 May 2003 Archived

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