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Edited version of your private ruling
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Ruling
Subject: Franking credits
Question
Are you entitled to a refund of franking credits if you do not include a dividend and franking credit as part of your assessable income?
Answer: No.
This ruling applies for the following periods
Year ended 30 June 2009
Year ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts
You and a family member are shareholders of a company.
Your family member is also a director of the company.
The company's financial records indicate an interim dividend was paid to the shareholders of the company.
The company did not issue any dividend distribution statements to you.
Relevant legislative provisions
Income Tax Assessment Act 1936 subsection 6(1)
Income Tax Assessment Act 1936 subsection 44(1).
Income Tax Assessment Act 1997 section 207-20.
Reasons for decision
Dividends
Section 44 of the Income Tax Assessment Act 1936 (ITAA 1936) states that a resident shareholder's assessable income includes all dividends paid by a resident or non-resident company out of profits derived from any source.
A dividend for Australian tax purposes is defined in subsection 6(1) of the ITAA 1936 and states:
Dividend includes:
(a) any distribution made by a company to any of its shareholders, whether in money or other property; and
(b) any amount credited by a company to any of its shareholders as shareholders;
Therefore where a shareholder has a dividend paid or credited to them in a particular income year the amount is required to include in their assessable income.
Franking credits
Section 207-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states the amount of the dividend included in the shareholder's assessable income includes the amount of the franking credit on the distribution. The shareholder is also entitled to a tax offset equal to the amount of the franking credit on the distribution.
In your case, you are seeking a refund of the franking credits paid by the company. The Commissioner does not have the discretion to refund excess franking credits attributed to the interim dividends paid by the company as the dividend income and franking credits are required to be included as part of your assessable income. Where a dividend and franking credit have been declared as part of your assessable income, a refund of excess franking credits is payable once the amount of tax payable on your taxable income is determined. If your franking credits exceed the tax you have to pay, the difference will be refund as a refundable tax offset.