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Edited version of your private ruling
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Ruling
Subject: Frankable distributions
Question:
Can you pay a franked dividend out of foreign country sourced income which originated from a foreign country trust and which is distributed to you from an Australian trust beneficiary of the foreign country trust, to the extent of your available franking credits?
Answer:
Yes.
This ruling applies for the following periods:
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2011
Relevant facts and circumstances
An Australian resident trust will be in receipt of a distribution from a foreign country trust in relation to the sale of foreign country land completed in 2012. The land was acquired by the foreign country trust in 2009. You are a possible beneficiary of the Australian resident trust.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 202-40
Income Tax Assessment Act 1997 Section 202-45
Reasons for decision
Section 202-40 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a distribution is a frankable distribution to the extent that it is not unfrankable under section 202-45.
Section 202-45 of the ITAA 1997 provides the following distributions are unfrankable:
· distributions from profits sourced in Norfolk Island from companies that are resident there
· distributions made in respect of shares that are treated as debt (called nonequity shares)
· distributions funded from certain capital reserves of the company
· distributions made by Authorised Deposit-taking Institutions in relation to instruments that are characterised as non-share equity
· distributions made in relation to an instrument characterised as an equity interest (non-share equity) where the distribution exceeds available frankable profits
· deemed dividends, in accordance with Division 7A of the ITAA 1936, being payments or loans made by private companies to their members (or to their associates)
· deemed dividends in relation to excessive payments made by a private company to its shareholders, directors and associates
· distributions to controlled foreign companies that are deemed to be dividends under section 47A of the ITAA 1936
· deemed dividends in relation to capital streaming and dividend substitution arrangements
· distributions made in relation to off-market buy backs of equity interests where the amount paid in respect of the buy-back exceeds the market value of the equity interest
· demerger dividends, and
· certain distributions by a New Zealand franking company.
In your case, as foreign sourced capital gains income is not listed in section 202-45 of the ITAA 1997 as an unfrankable distribution, distributions you make from income received from the X Trust are frankable (to the extent of your available franking credits).
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