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  

Key concepts

SECTION 207-50   When a franked distribution flows indirectly to or through an entity  

207-50(1)  
For the purposes of this Subdivision, this section sets out the only circumstances in which a *franked distribution:


(a) flows indirectly to an entity (subsection (2), (3) or (4)); or


(b) flows indirectly through an entity (subsection (5)). Partners

207-50(2)  
A *franked distribution flows indirectly to a partner in a partnership in an income year if, and only if:


(a) during that income year, the distribution is made to the partnership, or *flows indirectly to the partnership as a beneficiary because of a previous application of subsection (3); and


(b) the partner has an individual interest:


(i) in the partnership ' s *net income for that income year that is covered by paragraph 92(1)(a) or (b) of the Income Tax Assessment Act 1936 ; or

(ii) in a *partnership loss of the partnership for that income year that is covered by paragraph 92(2)(a) or (b) of that Act;
(whether or not that individual interest becomes assessable income in the hands of the partner); and


(c) the partner ' s *share of the distribution under section 207-55 is a positive amount (whether or not the partner actually receives any of that share). Beneficiaries

207-50(3)  
A *franked distribution flows indirectly to a beneficiary of a trust in an income year if, and only if:


(a) during that income year, the distribution is made to the trustee of the trust, or *flows indirectly to the trustee as a partner or beneficiary because of a previous application of subsection (2) or this subsection; and


(b) the beneficiary has this amount for that income year (the share amount ):


(i) a share of the trust ' s *net income for that income year that is covered by paragraph 97(1)(a) of the Income Tax Assessment Act 1936 ; or

(ii) an individual interest in the trust ' s net income for that income year that is covered by section 98A or 100 of that Act;
(whether or not the share amount becomes assessable income in the hands of the beneficiary); and


(c) the beneficiary ' s *share of the distribution under section 207-55 is a positive amount (whether or not the beneficiary actually receives any of that share).

Trustees

207-50(4)  
A *franked distribution flows indirectly to the trustee of a trust in an income year if, and only if:


(a) during that income year, the distribution is made to the trustee, or *flows indirectly to the trustee as a partner or beneficiary because of a previous application of subsection (2) or (3); and


(b) the trustee is liable or, but for another provision in this Act, would be liable, to be assessed in respect of an amount (the share amount ) that is:


(i) a share of the trust ' s *net income for that income year under section 98 of the Income Tax Assessment Act 1936 ; or

(ii) all or a part of the trust ' s net income for that income year under section 99 or 99A of that Act;
(whether or not the share amount becomes assessable income in the hands of the trustee); and


(c) the trustee ' s *share of the distribution under section 207-55 is a positive amount (whether or not the trustee actually receives any of that share).

Note:

A trustee to whom a franked distribution flows indirectly under this subsection is entitled to a tax offset under section 207-45 and the distribution does not flow indirectly through the trustee to another entity.

207-50(5)  


A *franked distribution flows indirectly through an entity (the first entity ) to another entity if, and only if:


(a) the other entity is the focal entity in an item of the table in section 207-55 in relation to the distribution; and


(b) that focal entity ' s *share of the distribution is based on the first entity ' s share of the distribution as an intermediary entity in that or another item of the table.

Example:

A franked distribution of $140 is made to a partnership. An amount equal to the franking credit on the distribution ($60) is included in the partnership ' s assessable income under section 207-35 . Because the partnership has losses of $300 from other sources, it has a partnership loss of $100 for the income year.

The partnership has 2 equal partners. One partner is the trustee of a trust and the other partner is an individual. The distribution flows indirectly to each partner under subsection (2). Each partner has a share of the partnership loss ($50), a share of the distribution under sections 207-55 ($70) and a share of the franking credit under section 207-57 ($30).

The individual partner is allowed a tax offset of $30 under section 207-45 .

Because the trust has $100 of income from other sources, it has a net income of $50 for that income year ($100 minus the share of the partnership loss of $50).

The trust has one individual as a beneficiary, to whom the distribution flows indirectly under subsection (3). The beneficiary ' s share of the franked distribution is therefore $70 under sections 207-55 and its share of the franking credit is $30 under section 207-57 . The beneficiary is also allowed a tax offset of $30 under section 207-45 .


 

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