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Edited version of your written advice
Authorisation Number: 1051233344512
Date of advice: 07 June 2017
Ruling
Subject: Refund of franking credits
Question 1
Is the Corporation an exempt Institution that is eligible for a refund pursuant to subsection 207-115(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Will the Corporation be entitled to a refund of the franking credits attached to a franked distribution the Corporation will receive from the Company in the year of income in which the franked distribution is made pursuant to Division 67 of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
● Income year ending 30 June 20xx
● Income Year ending 30 June 20xx
The scheme commences on:
1 July 20xx
Relevant facts and circumstances
The Corporation is an Australian company.
The Corporation is registered as a charity with the Australian Charity and Not-for-profits Commission, and is endorsed as exempt from income tax under Subdivision 50-B of the ITAA 1997 as a registered charity.
The Corporation owns all of the ordinary shares in a Company.
The Corporation has held its shares in the Company for at least 45 days.
The Company has a net asset surplus as at 30 June 2016.
The Company has a positive franking account balance based on its tax return for the year ended 30 June 2016.
The Company proposes to issue fully franked dividends to the Corporation.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 50-5
Income Tax Assessment Act 1997 section 63-10
Income Tax Assessment Act 1997 Division 67
Income Tax Assessment Act 1997 section 67-25
Income Tax Assessment Act 1997 section 204-30
Income Tax Assessment Act 1997 section 207-115
Income Tax Assessment Act 1997 subsection 207-115(2)
Reasons for decision
Question 1
Detailed reasoning
Subsection 207-115(2) of the ITAA 1997 provides that an entity is an 'exempt institution that is eligible for a refund’ where it:
(a) is covered by item 1.1 of the table in section 50-5; and
(b) is endorsed as exempt from income tax under Subdivision 50-B; and
(c) satisfies the residency requirements.
Item 1.1 of the table in section 50-5 of the ITAA 1997 specifies 'registered charity’ as a type of exempt entity.
The residency requirements are provided in section 207-117 of the ITAA 1997, which provides:
An entity satisfies the residency requirement for the purposes of determining whether, at the time a franked distribution is made, the entity is an exempt institution that is eligible for a refund if:
(a) the entity has a physical presence in Australia; and
(b) to that extent, incurs its expenditure and pursues its objectives principally in Australia;
at all times during the income year in which the distribution is made.
The Corporation is a registered charity and is endorsed as exempt from income tax under subdivision 50-B of the ITAA 1997.
The Corporation operates in Australia, and provides services for the benefit of people in Australia. It is accepted that the Corporation has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.
The Corporation satisfies the requirements in subsection 207-115(2) of the ITAA 1997, and is an exempt institution that is eligible for a refund.
Question 2
Detailed reasoning
The Tax offsets available under Division 207 of the ITAA 1997 are subject to the refundable tax offset rules in Division 67 of the ITAA 1997 unless otherwise stated in section 67-25 of the ITAA 1997.
Subsect 67-25 (1C) of the ITAA 1997 provides that where a corporate tax entity (that is, a company, corporate limited partnership and a public trading trusts) is entitled to a tax offset under Division 207 of the ITAA 1997 because a franked distribution is made to the entity, the tax offset is not subject to the refundable tax offset rules unless:
(a) the entity is an exempt institution that is eligible for a refund; or
(b) …
The Corporation is an exempt institution that is eligible for a refund. As such, the refundable tax offset rules will apply to the franking credits attached to the franked distribution (tax offset) received by the Corporation.
Item 40 of the table in section 63-10 of the ITAA 1997 provides that where a taxpayer is subject to the refundable tax offset rules in Division 67 of the ITAA 1997, any offset that remains after being applied to your basic tax liability, will be refunded.
As the Corporation is exempt from income tax, it will be entitled to a refund of all of the franking credits attached to the franked distribution it will receive from the Company in the relevant income year.
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