ATO Interpretative Decision
ATO ID 2004/837
Income Tax
Income Tax: Allocation of a franking credit to a distributionFOI status: may be released
-
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will the decision to allocate a franking credit to a distribution by a corporate tax entity, pursuant to section 202-5 of the Income Tax Assessment Act 1997 (ITAA 1997), give rise to a franking debit in the franking account at that time?
Decision
No. The decision to allocate a franking credit to a distribution by a corporate tax entity, pursuant to section 202-5 of the ITAA 1997, will not give rise to a franking debit in the franking account. Pursuant to Item 1 of the table in subsection 205-30(1) of the ITAA 1997, a debit to the franking account arises when the actual payment of the distribution is made.
Facts
A corporate tax entity decides on 1 September 2002 to pay a fully franked dividend of $7,000, allocating a $3,000 franking credit, to its shareholders. On 2 July 2003, the corporate tax entity pays the distribution to its shareholders.
Reasons for Decision
Section 202-5 of the ITAA 1997 states that an entity franks a distribution if the following conditions are satisfied:
- •
- if the entity is a franking entity that satisfies the residency requirement when the distribution is made; and
- •
- if the distribution is a frankable distribution; and
- •
- the entity allocates a franking credit to the distribution.
The mechanism by which an entity allocates a franking credit is determined by the entity. However, the decision to allocate a franking credit, without actual payment of the distribution, does not in itself give rise to a franking debit in the franking account.
Item 1 of the table in subsection 205-30(1) of the ITAA 1997 states that if the entity franks a distribution, a debit equal to the amount of the franking credit allocated to the distribution arises on the day on which the distribution is made.
On the facts of this case, the entity's decision to allocate a franking credit of $3,000 on the distribution on 1 September 2002 does not give rise to a franking debit in the franking account at that time. When the payment of the distribution is made on 2 July 2003, the decision to allocate a franking credit of $3,000 to the distribution is given effect and only then does a franking debit entry arise in the franking account.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 22 September 2017 | Decision
Reasons for decision Legislative reference |
Corrected legislative reference to subsection 205-30(1) of the ITAA 1997 |
Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 202-5
subsection 205-30(1)
Keywords
Company tax
Franking accounts
Franking debits
Imputation system
Date reviewed: 11 September 2017
ISSN: 1445-2782
| Date: | Version: | |
| 14 October 2004 | Original statement | |
| You are here | 22 September 2017 | Updated statement |
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).
