Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 203 - Benchmark rule  

Operative provisions  

SECTION 203-50   Consequences of breaching the benchmark rule  

203-50(1)    
If an entity makes a *frankable distribution in breach of the *benchmark rule:

(a) the entity is liable to pay over-franking tax imposed by the New Business Tax System (Over-franking Tax) Act 2002 if the *franking percentage for the *distribution exceeds the entity ' s *benchmark franking percentage for the *franking period in which the distribution is made; and

(b) a *franking debit arises in the entity ' s *franking account if the franking percentage for the distribution is less than the entity ' s benchmark franking percentage for the franking period in which the distribution is made.

203-50(2)    

Use the following formula to work out:

(a) in a case dealt with under paragraph (1)(a) - the amount of the *over-franking tax; and

(b) in a case dealt with under paragraph (1)(b) - the amount of the *franking debit:

	Amount of the *frankable distribution	×	Franking % differential
			Applicable gross-up rate

where:

applicable gross-up rate
means the *corporate tax gross-up rate of the entity making the distribution for the income year in which the distribution is made.

franking % differential
is the difference between:

(a) the *franking percentage for the *frankable distribution; and

(b) either:

(i) if subparagraph (ii) does not apply - the entity ' s *benchmark franking percentage for the *franking period in which the *distribution is made; or

(ii) if the Commissioner in the exercise of the Commissioner ' s powers under subsection 203-55(1) , permits the entity to frank the distribution at a different franking percentage - that percentage.

Example:

An entity makes 3 successive frankable distributions in a franking period. Each of those distributions is represented in the following diagram. The franking percentage for the first distribution is 40%, and so the entity ' s benchmark franking percentage for the period is 40%.

Note:

Distribution 2 is under-franked to the extent of the franking % differential. This is used to work out the amount of the under-franking debit under subsection (2).

Distribution 3 is over-franked to the extent of the franking % differential. This is used to work out the amount of over-franking tax on the distribution under the New Business Tax System (Over-franking Tax) Act 2002 . The amount of the tax is calculated using the same formula as that set out in subsection (2).

203-50(3)    
A *franking debit arising under paragraph (1)(b) is in addition to any franking debit that would otherwise arise for the entity because of the *distribution.

203-50(4)    
The *franking debit arises on the day on which the *frankable distribution is made.