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-B - Franked distribution received through certain partnerships and trustees  

Gross-up and tax offset

SECTION 207-35   Gross-up - distribution made to, or flows indirectly through, a partnership or trustee  

Additional amount of assessable income

207-35(1)  
If:


(a) a *franked distribution is made in an income year to an entity that is a partnership or the trustee of a trust; and


(b) the entity is not a *corporate tax entity when the distribution is made; and


(c) if the entity is the trustee of a trust - the trust is not a *complying superannuation entity when the distribution is made;

the assessable income of the partnership or trust for that income year includes the amount of the *franking credit on the distribution.

207-35(2)  
The amount is in addition to any other amount included in that assessable income in relation to the distribution under any other provision of this Act.

Note:

The amount will affect the income tax liability of a partner in the partnership, or a beneficiary or the trustee of the trust: see Divisions 5 and 6 of Part III of the Income Tax Assessment Act 1936 .

207-35(3)  


Subsection (4) applies if:


(a) a *franked distribution is made, or *flows indirectly, to a partnership or the trustee of a trust in an income year; and


(b) the assessable income of the partnership or trust for that year includes an amount (the franking credit amount ) that is all or a part of the additional amount of assessable income included under subsection (1) in relation to the distribution; and


(c) the distribution flows indirectly to an entity that is a partner in the partnership, or a beneficiary or the trustee of the trust; and


(d) disregarding Division 6E of Part III of the Income Tax Assessment Act 1936 , the entity has an amount of assessable income for that year that is attributable to all or a part of the distribution.

207-35(4)  


Despite any provisions in Divisions 5 and 6 of Part III of the Income Tax Assessment Act 1936 , the entity ' s assessable income for that year also includes:


(a) in the case of an entity that is a partner in a partnership - so much of the franking credit amount as is equal to the entity ' s *share of the *franking credit on the distribution; and


(b) in the case of an entity that is a beneficiary of a trust:


(i) so much of the franking credit amount as is equal to the entity ' s share of the franking credit on the distribution; and

(ii) the amount mentioned in section 207-37 .
Example:

A franked distribution of $70 is made to the trustee of a trust in an income year. The trust also has $100 of assessable income from other sources. Under subsection (1), the trust ' s assessable income includes an additional amount of $30 (which is the franking credit on the distribution). The trust has a net income of $200 for that income year.

There are 2 beneficiaries of the trust, P and Q, who are presently entitled to the trust ' s income. Under the trust deed, P is entitled to all of the franked distribution and Q is entitled to all other income.

The distribution flows indirectly to P (as P has a share of the trust ' s net income that is covered by paragraph 97(1)(a) and has a share of the distribution under section 207-55 equal to 100% of the distribution).

Under this subsection, P ' s assessable income includes $70 (the amount mentioned in section 207-37 (attributable franked distribution)) and also includes the full amount of the franking credit (as P ' s share of the franking credit on the distribution is $30 under section 207-57 ). Q ' s assessable income does not include any of the amount of the franked distribution or the franking credit.

207-35(5)  


Subsection (6) applies if:


(a) a *franked distribution is made, or *flows indirectly, to the trustee of a trust in an income year; and


(b) the assessable income of the trust for that year includes an amount (the franking credit amount ) that is all or a part of the additional amount of assessable income included under subsection (1) in relation to the distribution; and


(c) disregarding Division 6E of Part III of the Income Tax Assessment Act 1936 , the trustee of the trust is liable to be assessed (and pay tax) in respect of an amount (the assessable amount ) under section 98 , 99 or 99A of that Act in relation to the trust.

207-35(6)  


Despite any provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 , for the purposes of that Division, increase the assessable amount by so much of the franking credit amount as is equal to:


(a) if the trustee of the trust is liable to be assessed (and pay tax) under section 98 of that Act - the sum of:


(i) the trustee ' s *share of the *franking credit on the distribution in respect of the beneficiary; and

(ii) the amount mentioned in section 207-37 ; or


(b) if the trustee of the trust is liable to be assessed (and pay tax) under section 99 or 99A of that Act - the sum of:


(i) the trustee ' s share of the franking credit on the distribution; and

(ii) the amount mentioned in section 207-37 .

 

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