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Edited version of your private ruling
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Ruling
Subject: Franking credit tax offset
Question 1
Is the taxpayer entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the $Y off-market share buy-back dividend that was made to them by the private company in 2012?
Answer
Yes. Please see our 'Reasons for decision'.
This ruling applies for the following period:
1 July 2011 to 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
The taxpayer is an Australian resident individual.
Prior to the off-market share buy-back, the taxpayer held A ordinary shares in the private company.
In 2012, the private company undertook an off-market share buy-back where it bought back, and subsequently cancelled, the taxpayer's A ordinary shares for $Z.
Of the $Z off-market share buy-back purchase price, $Y was a fully franked dividend with $X franking credits.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 207-20(1),
Income Tax Assessment Act 1997 Subsection 207-20(2),
Income Tax Assessment Act 1997 Section 207-70 and
Income Tax Assessment Act 1997 Subsection 207-75(1).
Reasons for decision
Summary
The taxpayer is entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the $Y off-market share buy-back dividend that was made to them by the private company in 2012.
Detailed reasoning
Section 207-70 of the ITAA 1997 provides that unless the taxpayer satisfies the residency requirement:
· no amount of the $X franking credits can be included in their assessable income for the income year ended 30 June 2012 under subsection 207-20(1) of the ITAA 1997, and
· they are not entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the ITAA 1997.
The taxpayer will satisfy the residency requirement under subsection 207-75(1) of the ITAA 1997 as they were a resident in 2012 at the date on which the off-market share buy-back dividend was made.
In conclusion, the taxpayer is entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the ITAA 1997 in respect of the off-market share buy-back dividend that was made to them by the private company in 2012.
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