Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 207 - Effect of receiving a franked distribution  

Subdivision 207-F - No gross-up or tax offset where the imputation system has been manipulated  

Operative provisions

SECTION 207-150   Distribution that flows indirectly to an entity  

Whole of share of distribution manipulated

207-150(1)    
If a *franked distribution *flows indirectly to an entity in an income year in one or more of the following circumstances:

(a) the entity is not a qualified person in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the Income Tax Assessment Act 1936 ;

(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of that Act that no imputation benefit (within the meaning of that section) is to arise in respect of the distribution for the entity;

(c) the Commissioner has made a determination under paragraph 204-30(3)(c) of this Act that no *imputation benefit is to arise in respect of the distribution for the entity;

(d) the distribution is treated as an interest payment for the entity under section 207-160 of this Act;

(e) the distribution is made as part of a *dividend stripping operation;

(ea) the distribution is one to which section 207-157 (which is about distribution washing) applies;

(eb) the distribution is one to which section 207-158 (which is about foreign income tax deductions) applies;

then, for the purposes of this Act:

(f) subsection (2), (3) or (4) (as appropriate) applies to the entity in relation to that income year; and

(g) the entity is not entitled to a *tax offset under this Division because of the distribution; and

(h) if the distribution *flows indirectly through the entity to another entity - subsection 207-35(3) and section 207-45 do not apply to that other entity.

Partner

207-150(2)    
If the *franked distribution *flows indirectly to the entity as a partner in a partnership under subsection 207-50(2) , the entity can deduct an amount for that income year that is equal to its *share of the *franking credit on the distribution.

Beneficiary

207-150(3)    
If the *franked distribution *flows indirectly to the entity as a beneficiary of a trust under subsection 207-50(3) , the entity can deduct an amount for that income year that is equal to the lesser of:

(a) its share amount in relation to the distribution that is mentioned in that subsection; and

(b) its *share of the *franking credit on the distribution.

Trustee

207-150(4)    
If the *franked distribution *flows indirectly to the entity as the trustee of a trust under subsection 207-50(4) , the entity ' s share amount in relation to the distribution that is mentioned in that subsection is to be reduced by the lesser of:

(a) that share amount; and

(b) its *share of the *franking credit on the distribution.

Part of share of distribution manipulated

207-150(5)    
If:

(a) a *franked distribution *flows indirectly to an entity in an income year; and

(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise in respect of a specified part of the distribution (the specified part ) for the entity;

then, subsection (2), (3) or (4) (as appropriate) applies to the entity on the basis that the amount of its *share of the *franking credit on the distribution is worked out as follows:

Specified part                   Entity ' s *share of the *franked distribution

×

Entity ' s *share of the *franking credit on the *franked distribution apart from this section

207-150(6)    
In addition, the following apply to an entity covered by subsection (5):

(a) if the distribution would otherwise *flow indirectly through the entity - the entity ' s *share of the distribution for the purposes of this Act (other than subsection (2), (3) or (4)) is to be reduced by the specified part mentioned in subsection (5);

(b) if the entity would otherwise be entitled to a *tax offset under this Division because of the distribution - the amount of the tax offset is to be worked out as follows:

Entity ' s *share of the *franking credit on the *franked distribution apart from this section

−

Amount worked out under subsection (5)

Example:

X is a partner in a partnership to which a franked distribution of $140 is made. The franking credit on the distribution ($60) is included in the assessable income of the partnership under section 207-35 . X ' s share of the distribution is $70 and its share of the franking credit on the distribution is $30.

The Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise for X in respect of $42 of the distribution.

Under subsection (5), X will be allowed a deduction of $18.

X is the trustee of a trust and the distribution will flow indirectly through X to beneficiaries of the trust. For the purposes of working out a beneficiary ' s share of the distribution and its share of the franking credit, X ' s share of the franked distribution is reduced to $28 under this subsection.

What happens if both subsection 207-95(1) and subsection (1) of this section would apply

207-150(7)    
If, apart from this subsection, both subsection 207-95(1) and subsection (1) of this section would apply to an entity in relation to a *franked distribution, then:

(a) subsection (1) of this section applies to the entity; but

(b) subsection 207-95(1) does not apply to the entity.

What happens if both subsection 207-95(5) and subsection (5) of this section would apply

207-150(8)    
If, apart from this subsection, both subsection 207-95(5) and subsection (5) of this section would apply to an entity in relation to a *franked distribution, then:

(a) apply subsections 207-95(5) and (6) first; and

(b) apply subsections (5) and (6) of this section on the basis that:

(i) the amount of the entity ' s *share of the *franking credit on the distribution had been reduced under subsection 207-95(5) ; and

(ii) the amount of the entity ' s *share of the distribution had been reduced under subsection 207-95(6) .