ATO Interpretative Decision
ATO ID 2004/460
Income Tax
Franking Deficit Tax: due date for payment when entity joins consolidated groupFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will the franking deficit tax liability become due and payable pursuant to subsection 214-150(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where an entity joining a consolidated group has a franking account debit balance immediately before the joining time?
Decision
Yes. The franking deficit tax liability will become due and payable pursuant to subsection 214-150(1) of the ITAA 1997 where an entity joining a consolidated group has a franking account debit balance immediately before the joining time.
Facts
The taxpayer's franking account was in deficit at the time when it became a wholly owned subsidiary of a company which intends to form a consolidated group.
It is intended that the consolidated group will be formed with a date of effect preceding the date on which the acquisition of shares in the taxpayer was completed. That is, the taxpayer company will be taken to have joined an existing consolidated group.
Reasons for Decision
Paragraph 709-60(3)(b) of the ITAA 1997 causes a joining entity to become liable to franking deficit tax where its franking account is in deficit just before the joining time. The joining entity is liable to pay franking deficit tax as if the joining entity's income year had ended just before the joining time.
Subsection 214-150(1) of the ITAA 1997 provides that franking tax assessed for a corporate tax entity because of events that have occurred, or are taken to have occurred, during an income year is due and payable on the last day of the month immediately following the end of the income year.
Subsection 995-1(1) of the ITAA 1997 provides the basic meaning of income year as given by subsections 4-10(2) and 9-5(2) of the ITAA 1997.
According to the definitions provided by subsections 4-10(2) and 9-5(2) of the ITAA 1997, a company's income year will, in general terms, be either the financial year or a substituted accounting period.
Therefore, the franking deficit tax liability arising where an entity joining a consolidated group has a franking account debit balance immediately before the joining time becomes due and payable on the last day of the month immediately following the end of the relevant income year under subsection 214-150(1) of the ITAA 1997.
Date of decision: 5 May 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 709-60(3)(b)
section 214-150(1)
section 4-10(2)
section 9-5(2)
section 995-1
Keywords
Franking assessments
Franking deficit tax
ISSN: 1445-2782
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
