House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 4 - Life assurance companies

Outline of chapter

4.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1936 to correct certain anomalies in the dividend imputation provisions as they apply to life assurance companies by limiting the extent to which life assurance companies can apply a payment of franking deficit tax (FDT) or deficit deferral tax (DDT) to offset their income tax assessment liability.

4.2 The amendments also provide a transitional rule that will provide an alternative treatment in certain circumstances where an FDT or DDT liability arose before 4 May 1999.

Context of reform

4.3 The dividend imputation provisions that apply to non-mutual life assurance companies generally limit the extent to which franking credits and debits arise in the companys franking account. Broadly speaking, the limitations are based on the extent to which dividends can be paid to shareholders of the company.

4.4 Prior to 1 July 2000, the franking credits and debits that arose were limited to those referable to the income attributable to the non-insurance funds of the company and 20% of the income attributable to the insurance funds of the company.

4.5 From 1 July 2000, the franking credits and debits that arise are limited to those attributable to insurance business income allocated to shareholders and non-insurance business income included in shareholders funds income.

4.6 Due to anomalies in the existing imputation provisions, the rules can be circumvented in circumstances where a life assurance company over-franks the payment of dividends and applies the resulting FDT to offset the companys final income tax assessment liability.

Summary of new law

4.7 In summary, the amendments will address the anomalies:

•

in respect of income arising on or after 1 July 2000 - by limiting the extent to which life assurance companies can apply FDT or DDT to offset their income tax assessment to that part of the assessment that is referable to the income of shareholders, if any;

•

in respect of pre 1 July 2000 income - by limiting the extent to which life assurance companies can apply FDT or DDT to offset their income tax assessment to that part of the assessment that is referable to non-insurance income and 20% of statutory fund income (i.e. insurance business); and

•

by providing a transitional rule that allows life assurance companies, in certain limited circumstances, to treat the payment of FDT or DDT as a payment of company tax where the company became liable for FDT or DDT before 4 May 1999.

Detailed explanation of new law

Background

4.8 The dividend imputation provisions as they apply to non-mutual life assurance companies generally limit the extent to which franking credits and debits arise in the companys franking account.

4.9 Prior to 1 July 2000, franking credits and debits arose for the payment and refund of income tax and receipt of franked dividends on the same basis as for other companies with shareholders. However, franking credits and debits that were attributable to policyholders income were intended to be reduced by 80% to reflect the prudential requirements that limited the portion of insurance income that could be distributed to shareholders. To the extent that the franking credits and debits were not attributable to insurance income, there was no reduction. In this way, franking credits and debits arose in relation to income attributable to shareholders.

4.10 As a result of measures introduced to broaden the tax base of life insurers, new rules apply from 1 July 2000 which provide that franking credits and debits arise for the payment and refund of income tax and the receipt of franked dividends attributable to shareholders funds income. Shareholders funds income comprises insurance business income allocated to shareholders and non-insurance business income included in shareholders funds income.

4.11 If, at the end of the franking year (generally a companys income year) the franking account of a life assurance company is in deficit - that is, the total franking debits of a particular class exceeds the total franking credits of the same class - the company becomes liable for FDT. The amount of the FDT is the adjusted amount of the franking deficit. Subsequent company tax assessments may be offset by the FDT liability.

4.12 The intended limitation on franking credits for payments of income tax that is not attributable to the income of shareholders is circumvented where a life assurance company overfranks the payment of dividends and applies the resulting FDT liability to offset the companys final income tax assessment liability.

4.13 In effect, by meeting its end of year tax liability by applying the payment of FDT, no reduction in franking credits occurs. By implementing such a strategy, a life assurance company could distribute a significantly higher amount of franked dividends to its shareholders than it could do by meeting its end of year tax liability by paying income tax.

Provisions to correct anomalies

4.14 The anomalies in the dividend imputation provisions will be corrected by introducing rules that limit the extent to which a liability for FDT or DDT can be applied to an original company tax assessment (or amended company tax assessment). In general terms, the application of any liability for FDT or DDT offset to reduce a company tax assessment liability will be limited to the lesser of:

•

the sum of all class A and class C FDT and DDT amounts not previously offset; and

•

the amount of the company tax assessment (or amended company tax assessment) less any foreign tax credits allowable in respect of that income year, that would have given rise to franking credits had it been paid.

4.15 Limiting the amount of the offset as described in paragraph 4.14 ensures that a life company does not generate more franking credits in any one year than would otherwise be available. This limitation recognises that the franking credits that would be generated for the payment of company tax for that year of income have in effect already been generated and distributed resulting in the original franking deficit. To provide for a greater offset would effectively allow more franking credits to arise for that income year than would otherwise arise from the payment of the company tax.

4.16 These rules apply in respect of original company tax assessments (or amended company tax assessments) arising on or after 4 May 1999. [Schedule 3, item 3, sections 160AQKAA to 160AQKAD]

4.17 The current offsetting rules provided in sections 160AQK and 160AQKA do not apply to life assurance companies in respect of liabilities for FDT or DDT that arises for franking years that end on or after 4 May 1999. [Schedule 3, item 1, subsection 160AQK(3) and item 2, subsection 160AQKA(2)]

Determination of an offset entitlement

4.18 The amendments provide that where a life assurance company has become liable to pay FDT or DDT, or both, in respect of a franking year and, after the end of the franking year, the Commissioner of Taxation (Commissioner) serves a notice of an original company tax assessment (or amended company tax assessment) on or after 4 May 1999, the Commissioner must make a determination of any offset entitlement in relation to that company tax (or amended company tax). [Schedule 3, item 3, subsections 160AQKAA(1) and (3)]

4.19 However, consistent with the self-determination rules a life assurance company can also self-determine whether an offset is allowable to the company and the amount of that offset. [Schedule 3, item 3, subsection 160AQKAA(5)]

4.20 The amount of the offset entitlement determined under an original or new determination is equal to the lesser of the following 2 amounts:

•

the sum of the class A FDT, class A DDT, class C FDT and class C DDT reduced by any part thereof that has previously been applied; and

•

the amount of the companys liability to pay company tax that would normally give rise to franking credits (determined under section 160AQKAB) reduced by allowable foreign tax credits in respect of income derived in the eligible year of income.

[Schedule 3, item 3, subsections 160AQKAA(2) and (4)]

4.21 Section 160AQKAB identifies the amount of the company tax assessment (or amended assessment) that would have given rise to franking credits for a particular year had the assessment liability been discharged by a payment.

4.22 Due to the introduction of the new franking regime for life assurance companies from 1 July 2000, the extent to which a payment of company tax produces franking credits varies according to the time the income upon which the tax is paid was derived. Subsections 160AQKAB(1) to (4) apply to different income years due to the variation in franking regimes.

4.23 Subsection 160AQKAB(1) applies in respect of company tax assessments (or amended assessments) for an income year that ends before 1 July 2000. Therefore, company tax which would normally produce franking credits for these years when paid is:

•

100% of company tax in respect of non-statutory fund income;

•

20% of company tax in respect of statutory fund income (other than retirement savings account (RSA) income); and

•

0% of company tax paid in respect of RSA income.

[Schedule 3, item 3, subsection 160AQKAB(1)]

4.24 Subsection 160AQKAB(2) applies in respect of company tax assessments (or amended assessments) for a life assurance companys 1999-2000 income year where that income year ends on or after 1 July 2000. This rule is applicable to late balancing life assurance companies. Income is derived in this income year both before and after 1 July 2000. Therefore, the tax which would normally produce franking credits when paid for this income year is:

•

100% of company tax in respect of non-statutory fund income derived before 1 July 2000;

•

20% of company tax in respect of statutory fund income (other than RSA income) derived before 1 July 2000;

•

0% of company tax in respect of RSA income derived before 1 July 2000; and

•

company tax in respect of shareholders funds income derived on or after 1 July 2000.

[Schedule 3, item 3, subsection 160AQKAB(2)]

4.25 Subsection 160AQKAB(3) applies in respect of company tax assessments (or amended assessments) for a life assurance companys 2000-2001 income year where that income year commences before 1 July 2000. This rule is applicable to early balancing life assurance companies. Income is also derived in this income year both before and after 1 July 2000. Therefore, the company tax which would normally produce franking credits when paid for this income year is:

•

100% of company tax in respect of non-statutory fund income derived before 1 July 2000;

•

20% of company tax in respect of statutory fund income (other than RSA income) derived before 1 July 2000;

•

0% of company tax in respect of RSA income derived before 1 July 2000; and

•

company tax in respect of shareholders funds income derived on or after 1 July 2000.

[Schedule 3, item 3, subsection 160AQKAB(3)]

4.26 Subsection 160AQKAB(4) applies in respect of company tax assessments (or amended assessments) for an income year that commences on or after 1 July 2000. Therefore, the relevant amount of company tax that normally produces franking credits is all company tax in respect of shareholders funds income. [Schedule 3, item 3, subsection 160AQKAB(4)]

Consequences of determining an offset entitlement - reduction of company tax liability

4.27 Where a life assurance company is entitled to an offset under section 160AQKAA, the companys liability to pay company tax (or amended company tax in the case of an amended assessment) is reduced by that amount. This means that the company is liable to pay the difference between the assessed tax and the offset applied to reduce the assessment liability - the reduced liability. [Schedule 3, item 3, section 160AQKAC]

Consequences of determining an offset entitlement - franking credits and debits

4.28 Special rules are required to calculate any franking credits and debits that arise where a life assurance company discharges its company tax assessment (or amended assessment) and is entitled to an offset under section 160AQKAA. [Schedule 3, item 3, section 160AQKAD]

4.29 During an income year, a life assurance company will pay company tax instalments or pay as you go (PAYG) instalments. Payment of these instalments gives rise to franking credits (or franking debits) under the ordinary life assurance company imputation rules. Where a life assurance company becomes entitled to an offset entitlement, those franking credits and debits are reversed out and the appropriate franking credits are calculated under the special rules.

4.30 Even though the franking account entries that arose during the year are reversed out at the time the offset entitlement occurs, they are taken to have occurred during the year. Accordingly, the reversal does not affect any required franking amount calculations that may have been made if dividends were paid during the year.

4.31 The franking credits and debits relating to the companys company tax for the eligible income year are reversed out under subsections 160AQKAD(4) and (6). Those subsections operate to reverse out:

•

franking credits and debits relating to the companys company tax for the eligible income year; and

•

in the case where an amended offset determination is made under section 160AQKAA, those franking credits and debits that have previously arisen under section 160AQKAD in relation to the eligible income year.

[Schedule 3, item 3, subsections 160AQKAD(4) and (6)]

4.32 To ensure that the special rules in section 160AQKAD that give rise to franking credits and debits apply exclusively, subsection 160AQKAD(3) operates to ensure that no franking credits or debits arise on or after the day on which an original company tax assessment for the eligible year of income is served except those that arise under section 160AQKAD. [Schedule 3, item 3, subsection 160AQKAD(3)]

4.33 Where an original company tax assessment is served on a life assurance company and an offset entitlement under section 160AQKAA arises, the class C franking credits that arise equal to the adjusted amount of the amount calculated by applying the formula in subsection 160AQKAD(5). [Schedule 3, item 3, subsection 160AQKAD(5)]

4.34 The formula effectively provides that franking credits arise upon assessment based on the extent to which the companys company tax liability for the year, reduced by the offset entitlement, has been paid. Further, the formula reduces the amount of the company tax assessment that would produce franking credits to an amount representing tax that would normally give rise to franking credits less the amount by which the company tax assessment has been reduced by an offset entitlement.

4.35 Where an amended company tax assessment is served on the company in respect of an eligible income year, a class C franking credit arises equal to the adjusted amount of the amount calculated by applying the formula in subsection 160AQKAD(7). [Schedule 3, item 3, subsection 160AQKAD(7)]

4.36 Where a payment of tax is made after assessment, a class C franking credit arises equal to the adjusted amount of the amount calculated by applying the formula in subsection 160AQKAD(9). [Schedule 3, item 3, subsection 160AQKAD(8) and (9)]

4.37 Where a life assurance company receives a refund of tax on or after assessment, a class C franking debit arises equal to the adjusted amount of the amount calculated according to the formula in subsection 160AQKAD(11). [Schedule 3, item 3, subsection 160AQKAD(10) and (11)]

Amended assessments

4.38 Where an offset entitlement arises in relation to a company tax assessment and that assessment is amended, the original offset determination is revoked and a new determination is made under subsection 160AQKAA(3). The consequence of this is that the original determination is taken not to have arisen. [Schedule 3, item 3, paragraph 160AQKAA(3)(d)]

4.39 The franking credits and debits that previously arose under section 160AQKAD are reversed out of the companys franking account by the posting of a reversing debits and credits. [Schedule 3, item 3, paragraphs 160AQKAD(6)(a) and (b)]

4.40 Where an amended assessment is served in respect of a year in which an offset determination was made under section 160AQKAA, a new offset determination is to be made in respect of that year. [Schedule 3, item 3, paragraph 160AQKAA(3)(e]

Example 4.1: Determination of an offset entitlement in respect of an original company tax assessment

Wonderful Life Limited is a standard balancing non-mutual life assurance company. During the income year ended 30 June 2001, Wonderful Life paid $150,000 in franked dividends causing a franking deficit of $132,000 in its class C franking account at year end. Accordingly, at the end of its 2001 franking year, the company became liable for class C FDT under subsection 160AQJ(1B). The amount calculated was $68,000 (i.e. $132,000 34 / 66).

On 31 December 2001, Wonderful Lifes original company income tax liability for the 2000-2001 income year was assessed as $400,000. Of that liability, $80,000 was attributable to the shareholders funds income.

Offset determination - original assessment

Subsection 160AQKAA(2) provides that the companys offset entitlement is the lesser of:

•

the paragraph 160AQKAA(2)(a) amount, that is, the class C FDT amount of $68,000; and

•

the paragraph 160AQKAA(2)(b) amount, that is, the amount calculated under subsection 160AQKAB(4).

The amount calculated under subsection 160AQKAB(4) equals the amount of the companys liability to pay company tax that is attributable to shareholders funds income, that is, $80,000. This is the amount of the companys liability to pay company tax that would normally give rise to franking credits.

As the FDT liability of $68,000 is less than the amount calculated under subsection 160AQKAB(4), the offset entitlement that can be applied against the 2000-2001 company tax assessment liability is $68,000 (i.e. the paragraph 160AQKAA(2)(a) amount).

Consequences of an offset determination - original assessment

The first consequence of the claiming of the offset determination is that the companys liability to pay company tax is reduced by the amount of the offset. Accordingly, that liability is reduced to $332,000 (i.e. $400,000 - $68,000).

The second consequence is that the franking credits and debits that arose during the year are reversed out. Assume that during the year the company paid $300,000 in PAYG instalments. At the time of paying the PAYG instalments, the company estimated that 15% of each instalment was referable to shareholders funds income. During the year provisional franking credits arose under section 160APVJ equal to $87,353 (i.e. $300,000 15% 66 / 34).

Ordinarily, these provisional franking credits would be reversed out upon assessment under section 160AQCNCB and final franking credits would be posted under section 160APVK. However, as there has been an offset determination under section 160AQKAA, the provisional franking credits that arose during the year are reversed out under paragraph 160AQKAD(4)(a). Sections 160AQCNCB and 160APVK are effectively switched off.

A franking debit arises at assessment time equal to the franking credits that arose during the year in respect of the payment of PAYG instalments, that is, $87,353.

As the company has paid $300,000 in PAYG instalments during the year and its company tax assessment has been reduced to $332,000, the company must pay $32,000 upon assessment. Assume that the company does pay this amount at assessment time.

Calculation of franking credits upon assessment

The franking credits that arise upon assessment are calculated under subsection 160AQKAD(5).

The company has a reduced liability for company tax of $332,000. The company has paid $332,000 in PAYG instalments and company tax for the eligible income year.

The amount of the companys liability to pay company tax that would normally give rise to franking credits was calculated earlier under subsection 160AQKAB(4) to be $80,000. The offset entitlement for the relevant income year was calculated earlier as $68,000. Therefore, the amount by which the liability to pay company tax has been reduced under section 160AQKAC is $68,000.

The franking credits that arise upon assessment are equal to the adjusted amount of the amount worked out using the formula in subsection 160AQKAD(5).

That is:

Substituting the information into the equation:

The resulting amount calculated by applying the formula is $12,000. The class C franking credits that arise upon assessment is equal to the adjusted amount of $12,000 - that is, $23,294 (i.e. $12,000 66 / 34).

Example 4.2: Determination of an offset entitlement in respect of an amended company tax assessment

Assume that Wonderful Life Limited receives an amended assessment on 31 March 2002 which reduces the companys company tax assessment to $300,000 before taking into account any offset entitlement. The original offset determination is revoked under paragraph 160AQKAA(3)(c) and a new determination is to be made under subsections 160AQKAA(3) and (4).

Offset determination - original assessment

Subsection 160AQKAA(4) provides that the companys offset entitlement is the lesser of:

•

the paragraph 160AQKAA(4)(a) amount, that is, the class C FDT amount of $68,000; and

•

the paragraph 160AQKAA(4)(b) amount, that is, the amount calculated under subsection 160AQKAB(4).

As the original offset determination has been revoked, the amount of the FDT offset previously applied in respect of the original assessment is taken to not have been applied. Accordingly, the company has an amount of $68,000 that may potentially be applied against its amended assessment.

The company determines that the extent to which the amount of the amended assessment is attributable to shareholders funds is $60,000. Therefore, the amount calculated under subsection 160AQKAB(4) equals $60,000. This is the amount of the companys liability to pay company tax that would normally give rise to franking credits.

As the amount determined under subsection 160AQKAB(4) is less than the paragraph 160AQKAA(4)(a) amount, the offset entitlement that can be applied against the companys amended assessment liability is $60,000 (i.e. the paragraph 160AQKAA(4)(b) amount). Accordingly, the balance of the FDT liability, $8,000, may be carried forward to a subsequent year.

Consequences of an offset determination - amended assessment

The first consequence of the claiming of the offset determination is that the companys liability to pay company tax is reduced by the amount of the offset. Accordingly, that liability is reduced to $240,000 (i.e. $300,000 - $60,000).

The second consequence is that the franking credits that arose at the time of the original assessment are reversed out. That is, a class C debit of $23,294 is posted to the companys franking account.

The companys amended liability to pay company tax is $240,000. Therefore, the company receives a refund of $92,000. That is, the difference between the amount previously paid of $332,000 and the new company tax liability for the year.

Calculation of franking credits at the time of amendment

The franking credits that arise are calculated under subsection 160AQKAD(7).

The company has an amended liability for company tax reduced by an offset entitlement. The liability is equal to $240,000. The company has paid $332,000 in PAYG instalments and company tax for the eligible income year and has received a refund of $92,000.

The amount of the companys liability to pay company tax that would normally give rise to franking credits was calculated under subsection 160AQKAB(4) to be $60,000. The offset entitlement for the relevant income year was calculated earlier as $60,000. Therefore, the amount by which the liability to pay company tax has been reduced under section 160AQKAC is $60,000.

The franking credits that arise upon assessment are equal to the adjusted amount of the amount worked out using the formula in subsection 160AQKAD(7).

That is:

Substituting the information into the equation:

The result of this calculation is zero. Therefore, no class C franking credits arise at the time of the amended assessment.

Transitional rule where franking year ends before 4 May 1999

4.41 Transitional provisions are provided to ensure that the ongoing provisions to close the loophole do not have retrospective application.

4.42 The provisions effectively allow arrangements to exploit the existing anomaly to be unravelled in situations where a wholly-owned life assurance company (the subsidiary company) paid an overfranked dividend to its parent company and the resulting FDT/DDT liability has not yet been fully applied to reduce the subsidiarys company tax liability.

4.43 The transitional provisions restore the franking accounts of both the subsidiary and the parent company to their equivalent positions had the arrangement to exploit the existing anomaly not been executed.

4.44 The inappropriately generated franking credits passed on by the subsidiary to the parent are clawed back. The payment of FDT and DDT made by the subsidiary is treated as a payment of company tax for the purposes of the imputation provisions.

4.45 The transitional provisions apply where the following conditions are met:

•

a life assurance company (the subsidiary company) becomes liable for FDT or DDT before 4 May 1999;

•

some or all of the FDT/DDT liability (i.e. the available deficit/ deferral tax liability ) has not been offset before 4 May 1999; and

•

the company (the subsidiary company) is a wholly-owned resident subsidiary of another resident company (the holding company).

[Schedule 3, item 3, subsection 160AQKAE(1)]

Consequences for the subsidiary company where the transitional rule applies

4.46 Where the conditions of subsection 160AQKAE(1) are satisfied, the subsidiary company is not entitled to an offset under section 160AQK but may be entitled to an offset under the transitional rule. [Schedule 3, item 3, subsection 160AQKAE(2)]

4.47 Where the subsidiary satisfies in whole or part its FDT or DDT liability (i.e. the deficit/deferral tax amount) that arose before 4 May 1999, and the Commissioner serves on the company a notice of original company tax assessment (or an amended company tax assessment) for an income year in which the company was sufficiently resident, an offset entitlement arises under the transitional rule. The Commissioner, in such cases, must determine that the subsidiary company is entitled to an offset in relation to the company tax or increased company tax. [Schedule 3, item 3, subsection 160AQKAE(3)]

4.48 Consistent with sections 160AQK and 160AQKAA, the subsidiary company may determine an offset entitlement under the transitional rule. [Schedule 3, item 3, subsection 160AQKAE(5)]

4.49 The amount of the offset entitlement that is determined under this rule is equal to the lesser of the following 2 amounts:

•

the deficit/deferral tax amount worked out under subsection 160AQKAE(3) reduced by any part thereof that has previously been applied; and

•

the amount of the company tax or increased company tax reduced by allowable foreign tax credits in respect of income derived in the eligible year of income.

[Schedule 3, item 3, subsection 160AQKAE(4)]

4.50 Where an offset entitlement arises under the transitional rule, the payment of FDT and/or DDT is treated for the purposes of the imputation provisions of Division 2 of Part IIIAA as a payment of company tax. Accordingly, franking credits and debits arise in the subsidiarys franking account as if the offset that is applied were a payment of the company tax liability. This treatment is necessary to ensure that the subsidiary is returned to the equivalent position it would have been in if it had not entered into the arrangement to exploit the anomaly. The franking credits or debits arise at the later of 7 June 2001 or the date when the offset entitlement arose. [Schedule 3, item 3, subsection 160AQKAE(7)]

Consequences for the holding company where the transitional rule applies

4.51 In order to restore the holding (parent) company to the equivalent position it would have been in if the subsidiary had not entered the arrangement, it is necessary to ensure that the inappropriate franking credits that arose under the arrangement are clawed back from the parent entity. This is done by causing a debit to arise in the parent companys franking account according to the rule in subsection 160AQKAE(8). It therefore follows that the original overfranked dividend that was paid by the subsidiary to the parent is effectively unfranked. [Schedule 3, item 3, subsection 160AQKAE(8)]

4.52 A class C franking debit arises in the holding companys franking account on the later of 7 June 2001 or the date the subsidiary company offsets the relevant FDT/DDT liability. The amount of the franking debit is calculated as follows:

(available deficit and deferral tax liability) 64 / 36

Example 4.3: Application of transitional rule

Lucky Life Limited is an early balancing non-mutual life assurance company. The company is wholly-owned by Lucky Life Holdings Limited. Its 1998-1999 income year and franking commenced on 1 January 1998 and concluded on 31 December 1998.

At the end of its 1998-1999 franking year, Lucky Life Limited had a deficit in its class C franking account of $240,000.

As a result of this deficit, the company incurred a liability on 31 December 1998 to FDT under subsection 160AQJ(1B) equal to $135,000 (i.e. $240,000 36 / 64). The liability was discharged on 31 January 1999.

The resulting franking debit and credit entries are recorded as follows:

Holding company (class C franking debit)

Class C franking debit = total class C liability 64 / 36

= $135,000 64 / 36

= $240,000

Subsidiary company (class A and/or C franking credit)

On 1 June 1999, the subsidiarys final income tax assessment liability was determined to be $250,000. The components of the company tax assessment liability were as follows:

•

statutory fund component (excluding the RSA component) $200,000; and

•

general fund component:

-

RSA component $20,000; and

-

standard component $30,000.

The following franking credits arise in the subsidiary companys franking account on 7 June 2001:

•

class A credit: $200,000 20% 61 / 39 = $62,564

•

class C credit: $30,000 64 / 36 = $53,333

Note that the class A credit and class C credit would be converted to the equivalent credits based on the 34% tax rate because they arose after 1 July 2000.

Application and transitional provisions

4.53 The provisions apply in respect of company tax assessments (or amended assessments) arising on or after 4 May 1999. The transitional rule applies in limited circumstances where FDT has been paid before this date.