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Ruling
Subject: Income tax treatment of dividend payment
Question 1
Will the dividend constitute a frankable distribution under section 202-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Relevant facts and circumstances
The company is an Australian tax resident.
The company and its wholly owned subsidiaries have formed a tax consolidated group for income tax purposes.
The dividend will be paid to the company's shareholders for the 2012 income year.
The dividend will be sourced from the company's current year profit.
The company has sufficient franking credits to frank the dividend.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 202-40
Income Tax Assessment Act 1997 section 202-45
Reasons for decision
Under section 202-40 of the ITAA 1997, a distribution is a frankable distribution to the extent that it is not unfrankable under section 202-45 of the ITAA 1997.
Section 202-45 of the ITAA 1997 lists the distributions that are unfrankable. Paragraph 202-45(e) of the ITAA 1997 lists one of those distributions as:
· a distribution that is sourced, directly or indirectly, from a company's share capital account.
A dividend paid under section 254T of the Corporations Act 2001 will be subject to taxation as an assessable franked dividend if it is paid out of profits, and it is not otherwise sourced, directly or indirectly, from a company's share capital account.
Based on the facts provided, the dividend will constitute a frankable distribution under section 202-40 of the ITAA 1997.