INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 207 - Effect of receiving a franked distribution  

Subdivision 207-D - No gross-up or tax offset where distribution would not be taxed  

Operative provisions

SECTION 207-95   Distribution that flows indirectly to an entity  

Whole of share of distribution not assessable

207-95(1)  
If:


(a) a *franked distribution *flows indirectly to an entity in an income year; and


(b) the entity ' s *share of the distribution would, in its hands, be *exempt income or *non-assessable non-exempt income (whether or not it had actually received that share);

then, for the purposes of this Act:


(c) subsection (2), (3) or (4) (as appropriate) applies to the entity in relation to that income year; and


(d) the entity is not entitled to a *tax offset under this Division because of the distribution; and


(e) if the distribution flows indirectly through the entity to another entity - subsection 207-35(3) and section 207-45 do not apply to that other entity.

Note:

This section can therefore apply, for example, where the entity is a partner in a partnership that has a partnership loss and the entity does not actually receive any of the distribution.

Partner

207-95(2)  
If the *franked distribution *flows indirectly to the entity as a partner in a partnership under subsection 207-50(2) , the entity can deduct an amount for that income year that is equal to its *share of the *franking credit on the distribution. Beneficiary

207-95(3)  
If the *franked distribution *flows indirectly to the entity as a beneficiary of a trust under subsection 207-50(3) , the entity can deduct an amount for that income year that is equal to the lesser of:


(a) its share amount in relation to the distribution that is mentioned in that subsection; and


(b) its *share of the *franking credit on the distribution. Trustee

207-95(4)  


If the *franked distribution *flows indirectly to the entity as the trustee of a trust under subsection 207-50(4) , the entity ' s share amount in relation to the distribution that is mentioned in that subsection is to be reduced by the lesser of:


(a) that share amount; and


(b) its *share of the *franking credit on the distribution.

Example:

A franked distribution of $70 is made to a partnership.

Under section 207-35 , an additional amount of $30 is included in the partnership ' s assessable income because of the distribution.

The partnership has 2 equal partners, X and Y. X is a foreign resident individual whose share of partnership ' s net income for the income year is $50 (share of distribution of $35 and share of franking credit of $15). That share of distribution is not assessable income and not exempt income under section 128D of the Income Tax Assessment Act 1936 .

X ' s assessable income of $15 (share of franking credit) is reduced to nil because of the deduction of $15 under subsection (2). Because of subsection (1), X is not entitled to a tax offset under section 207-45 .

Part of share of distribution not assessable

207-95(5)  
If:


(a) a *franked distribution *flows indirectly to an entity in an income year; and


(b) a part of the entity ' s *share of the distribution (the relevant part ) would, in its hands, be *exempt income or *non-assessable non-exempt income (whether or not it had actually received that part);

then, subsection (2), (3) or (4) (as appropriate) applies to the entity on the basis that the amount of its *share of the *franking credit on the distribution is worked out as follows:


      Relevant part      
Entity ' s *share
of the *franked distribution
× Entity ' s *share
of the *franking credit on
the *franked distribution
apart from this section

207-95(6)  
In addition, the following apply to an entity covered by subsection (5):


(a) if the distribution would otherwise *flow indirectly through the entity - the entity ' s *share of the distribution for the purposes of this Act (other than subsection (2), (3) or (4)) is to be reduced by the relevant part mentioned in subsection (5);


(b) if the entity would otherwise be entitled to a *tax offset under this Division because of the distribution - the amount of the tax offset is to be worked out as follows:


Entity ' s *share of
the *franking credit on the
*franked distribution apart from this section
- Amount worked out
under subsection (5)


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