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-F - No gross-up or tax offset where the imputation system has been manipulated  

Operative provisions

SECTION 207-145   Distribution that is made to an entity  

Whole of distribution manipulated

207-145(1)  
If a *franked distribution is made to an entity in one or more of the following circumstances:


(a) the entity is not a qualified person in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the Income Tax Assessment Act 1936 ;


(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of that Act that no imputation benefit (within the meaning of that section) is to arise in respect of the distribution for the entity;


(c) the Commissioner has made a determination under paragraph 204-30(3)(c) of this Act that no *imputation benefit is to arise in respect of the distribution for the entity;


(d) the distribution is made as part of a *dividend stripping operation;


(da) the distribution is one to which section 207-157 (which is about distribution washing) applies;


(db) the distribution is one to which section 207-158 (which is about foreign income tax deductions) applies;

then, for the purposes of this Act:


(e) the amount of the *franking credit on the distribution is not included in the assessable income of the entity under section 207-20 or 207-35 ; and


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


(g) 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.

Part of share of distribution manipulated

207-145(2)  
If:


(a) a *franked distribution is made to an entity; and


(b) the Commissioner makes a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise in respect of a specified part of the distribution (the specified part ) for the entity;

then, for the purposes of this Act:


(c) the amount of the distribution is taken to have been reduced by the specified part; and


(d) the amount of the *franking credit on the distribution is to be worked out as follows:


*Franked distribution
apart from this section - Specified part
*Franked distribution
apart from this section
× *Franking credit
on the *franked distribution
apart from this section

Example:

A franked distribution of $70 is made to the trustee of a trust. Apart from this section, the franking credit on the distribution ($30) would be included in the assessable income of the trust under section 207-35 .

The Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise for the trustee in respect of $49 of the distribution.

Under this subsection, the amount included in the assessable income of the trust under section 207-35 because of the distribution is reduced from $30 to $9.

If there is a beneficiary of the trust that is presently entitled to the trust ' s income, the amount of the distribution that flows indirectly to the beneficiary is reduced from $70 to $21 under this subsection.

What happens if both subsection 207-90(2) and subsection (2) of this section would apply

207-145(3)  
If, apart from this subsection, both subsection 207-90(2) and subsection (2) of this section would apply to an entity in relation to a *franked distribution, then:


(a) apply subsection 207-90(2) first; and


(b) apply subsection (2) of this section on the basis that the amount of the *franked distribution had been reduced under subsection 207-90(2) .


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