Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 196

Compilation date:   6 July 2019

Includes amendments up to: Act No. 52, 2019

Registered:    7 August 2019

This compilation is in 12 volumes

Volume 1: sections 1‑1 to 36‑55

Volume 2: sections 40‑1 to 67‑30

Volume 3: sections 70‑1 to 121‑35

Volume 4: sections 122‑1 to 197‑85

Volume 5: sections 200‑1 to 253‑15

Volume 6: sections 275‑1 to 313‑85

Volume 7: sections 315‑1 to 420‑70

Volume 8: sections 615‑1 to 721‑40

Volume 9: sections 723‑1 to 880‑205

Volume 10: sections 900‑1 to 995‑1

Volume 11: Endnotes 1 to 3

Volume 12: Endnote 4

Each volume has its own contents

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 6 July 2019 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Self‑repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

Contents

Chapter 3—Specialist liability rules

Part 3‑6—The imputation system

Division 200—Guide to Part 3‑6

Guide to Division 200 1

200‑1 What this Division is about

200‑5 The imputation system

200‑10 Franking a distribution

200‑15 The franking account

200‑20 How a distribution is franked

200‑25 A corporate tax entity must not give its members credit for more tax than the entity has paid

200‑30 Benchmark rule

200‑35 Effect of receiving a franked distribution

200‑40 An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members

200‑45 Special rules for franking by some entities

Division 201—Objects and application of Part 3‑6

201‑1 Objects

201‑5 Application of this Part

Division 202—Franking a distribution

Subdivision 202‑A—Franking a distribution

Guide to Subdivision 202‑A

202‑1 What this Subdivision is about

Operative provisions

202‑5 Franking a distribution

Subdivision 202‑B—Who can frank a distribution?

Guide to Subdivision 202‑B

202‑10 What this Subdivision is about

Operative provisions

202‑15 Franking entities

202‑20 Residency requirement when making a distribution

Subdivision 202‑C—Which distributions can be franked?

Guide to Subdivision 202‑C

202‑25 What this Subdivision is about

202‑30 Frankable distributions

Operative provisions

202‑35 Object

202‑40 Frankable distributions

202‑45 Unfrankable distributions

202‑47 Distributions of certain ADI profits following restructure

Subdivision 202‑D—Amount of the franking credit on a distribution

Guide to Subdivision 202‑D

202‑50 What this Subdivision is about

202‑55 What is the maximum franking credit for a frankable distribution?

Operative provisions

202‑60 Amount of the franking credit on a distribution

202‑65 Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution

Subdivision 202‑E—Distribution statements

Guide to Subdivision 202‑E

202‑70 What this Subdivision is about

Operative provisions

202‑75 Obligation to give a distribution statement

202‑80 Distribution statement

202‑85 Changing the franking credit on a distribution by amending the distribution statement

Division 203—Benchmark rule

Guide to Division 203 18

203‑1 What this Division is about

203‑5 Benchmark rule

203‑10 Benchmark franking percentage

Operative provisions

203‑15 Object

203‑20 Application of the benchmark rule

203‑25 Benchmark rule

203‑30 Setting a benchmark franking percentage

203‑35 Franking percentage

203‑40 Franking periods—where the entity is not a private company

203‑45 Franking period—private companies

203‑50 Consequences of breaching the benchmark rule

203‑55 Commissioner’s powers to permit a departure from the benchmark rule

Division 204—Anti‑streaming rules

Subdivision 204‑A—Objects and application

204‑1 Objects

204‑5 Application

Subdivision 204‑B—Linked distributions

Guide to Subdivision 204‑B

204‑10 What this Subdivision is about

Operative provisions

204‑15 Linked distributions

Subdivision 204‑C—Substituting tax‑exempt bonus share for franked distributions

Guide to Subdivision 204‑C

204‑20 What this Subdivision is about

Operative provisions

204‑25 Substituting tax‑exempt bonus shares for franked distributions

Subdivision 204‑D—Streaming distributions

Guide to Subdivision 204‑D

204‑26 What this Subdivision is about

Operative provisions

204‑30 Streaming distributions

204‑35 When does a franking debit arise if the Commissioner makes a determination under paragraph 204‑30(3)(a)

204‑40 Amount of the franking debit

204‑41 Amount of the exempting debit

204‑45 Effect of a determination about distributions to favoured members

204‑50 Assessment and notice of determination

204‑55 Right to review where a determination made

Subdivision 204‑E—Disclosure requirements

Guide to Subdivision 204‑E

204‑65 What this Subdivision is about

Operative provisions

204‑70 Application of this Subdivision

204‑75 Notice to the Commissioner

204‑80 Commissioner may require information where the Commissioner suspects streaming

Division 205—Franking accounts, franking deficit tax liabilities and the related tax offset

Guide to Division 205 43

205‑1 What this Division is about

205‑5 Franking accounts, franking deficit tax liabilities and the related tax offset

Operative provisions

205‑10 Each entity that is or has been a corporate tax entity has a franking account

205‑15 Franking credits

205‑20 Paying a PAYG instalment, income tax or diverted profits tax

205‑25 Residency requirement for an event giving rise to a franking credit or franking debit

205‑30 Franking debits

205‑35 Refund of income tax or diverted profits tax

205‑40 Franking surplus and deficit

205‑45 Franking deficit tax

205‑50 Deferring franking deficit

205‑70 Tax offset arising from franking deficit tax liabilities

Division 207—Effect of receiving a franked distribution

Guide to Division 207 64

207‑5 Overview

Subdivision 207‑A—Effect of receiving a franked distribution generally

Guide to Subdivision 207‑A

207‑10 What this Subdivision is about

Operative provisions

207‑15 Applying the general rule

207‑20 General rule—gross‑up and tax offset

Subdivision 207‑B—Franked distribution received through certain partnerships and trustees

Guide to Subdivision 207‑B

207‑25 What this Subdivision is about

Gross‑up and tax offset

207‑30 Applying this Subdivision

207‑35 Gross‑up—distribution made to, or flows indirectly through, a partnership or trustee

207‑37 Attributable franked distribution—trusts

207‑45 Tax offset—distribution flows indirectly to an entity

Key concepts

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

207‑55 Share of a franked distribution

207‑57 Share of the franking credit on a franked distribution

207‑58 Specifically entitled to an amount of a franked distribution

207‑59 Franked distributions within class treated as single franked distribution

Subdivision 207‑C—Residency requirements for the general rule

Guide to Subdivision 207‑C

207‑60 What this Subdivision is about

207‑65 Satisfying the residency requirement

Operative provisions

207‑70 Gross‑up and tax offset under section 207‑20

207‑75 Residency requirement

Subdivision 207‑D—No gross‑up or tax offset where distribution would not be taxed

Guide to Subdivision 207‑D

207‑80 What this Subdivision is about

Operative provisions

207‑85 Applying this Subdivision

207‑90 Distribution that is made to an entity

207‑95 Distribution that flows indirectly to an entity

Subdivision 207‑E—Exceptions to the rules in Subdivision 207‑D

Guide to Subdivision 207‑E

207‑105 What this Subdivision is about

Operative provisions

207‑110 Effect of non‑assessable income on gross up and tax offset

Exempt institutions

207‑115 Which exempt institutions are eligible for a refund?

207‑117 Residency requirement

207‑119 Entity not treated as exempt institution eligible for refund in certain circumstances

207‑120 Entity may be ineligible because of a distribution event

207‑122 Entity may be ineligible if distribution is in the form of property other than money

207‑124 Entity may be ineligible if other money or property also acquired

207‑126 Entity may be ineligible if distributions do not match trust share amounts

207‑128 Reinvestment choice

207‑130 Controller’s liability

207‑132 Treatment of benefits provided by an entity to a controller

207‑134 Entity’s present entitlement disregarded in certain circumstances

207‑136 Review of certain decisions

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

Guide to Subdivision 207‑F

207‑140 What this Subdivision is about

Operative provisions

207‑145 Distribution that is made to an entity

207‑150 Distribution that flows indirectly to an entity

207‑155 When is a distribution made as part of a dividend stripping operation?

207‑157 Distribution washing

207‑158 Distributions entitled to a foreign income tax deduction

207‑160 Distribution that is treated as an interest payment

Division 208—Exempting entities and former exempting entities

Guide to Division 208 114

208‑5 What is an exempting entity?

208‑10 Former exempting entities

208‑15 Distributions by exempting entities and former exempting entities

Subdivision 208‑A—What are exempting entities and former exempting entities?

208‑20 Exempting entities

208‑25 Effective ownership of entity by prescribed persons

208‑30 Accountable membership interests

208‑35 Accountable partial interests

208‑40 Prescribed persons

208‑45 Persons who are taken to be prescribed persons

208‑50 Former exempting companies

Subdivision 208‑B—Franking with an exempting credit

Guide to Subdivision 208‑B

208‑55 What this Subdivision is about

Operative provisions

208‑60 Franking with an exempting credit

Subdivision 208‑C—Amount of the exempting credit on a distribution

Guide to Subdivision 208‑C

208‑65 What this Subdivision is about

Operative provisions

208‑70 Amount of the exempting credit on a distribution

Subdivision 208‑D—Distribution statements

Guide to Subdivision 208‑D

208‑75 Guide to Subdivision 208‑D

Operative provisions

208‑80 Additional information to be included by a former exempting entity or exempting entity

Subdivision 208‑E—Distributions to be franked with exempting credits to the same extent

Guide to Subdivision 208‑E

208‑85 What this Subdivision is about

Operative provisions

208‑90 All frankable distributions made within a franking period must be franked to the same extent with an exempting credit

208‑95 Exempting percentage

208‑100 Consequences of breaching the rule in section 208‑90

Subdivision 208‑F—Exempting accounts and franking accounts of exempting entities and former exempting entities

Guide to Subdivision 208‑F

208‑105 What this Subdivision is about

Operative provisions

208‑110 Exempting account

208‑115 Exempting credits

208‑120 Exempting debits

208‑125 Exempting surplus and deficit

208‑130 Franking credits arising because of status as exempting entity or former exempting entity

208‑135 Relationships that will give rise to a franking credit under item 5 of the table in section 208‑130

208‑140 Membership of the same effectively wholly‑owned group

208‑145 Franking debits arising because of status as exempting entity or former exempting entity

208‑150 Residency requirement

208‑155 Eligible continuing substantial member

208‑160 Distributions that are affected by a manipulation of the imputation system

208‑165 Amount of the exempting credit or franking credit arising because of a distribution franked with an exempting credit

208‑170 Where a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 affects part of the distribution

208‑175 When does a distribution franked with an exempting credit flow indirectly to an entity?

208‑180 What is an entity’s share of the exempting credit on a distribution?

208‑185 Minister may convert exempting surplus to franking credit of former exempting entity previously owned by the Commonwealth

Subdivision 208‑G—Tax effects of distributions by exempting entities

Guide to Subdivision 208‑G

208‑190 What this Subdivision is about

Operative provisions

208‑195 Division 207 does not generally apply

208‑200 Distributions to exempting entities

208‑205 Distributions to employees acquiring shares under eligible employee share schemes

208‑215 Eligible employee share schemes

Subdivision 208‑H—Tax effect of a distribution franked with an exempting credit

Guide to Subdivision 208‑H

208‑220 What this Subdivision is about

Operative provisions

208‑225 Division 207 does not generally apply

208‑230 Distributions to exempting entities and former exempting entities

208‑235 Distributions to employees acquiring shares under eligible employee share schemes

208‑240 Distributions to certain individuals

Division 210—Venture capital franking

Guide to Division 210 162

210‑1 Purpose of venture capital franking

210‑5 How is this achieved?

210‑10 What is a venture capital credit?

210‑15 What does the PDF have to do to distribute the credits?

210‑20 Limits on venture capital franking

Subdivision 210‑A—Franking a distribution with a venture capital credit

Guide to Subdivision 210‑A

210‑25 What this Subdivision is about

Operative provisions

210‑30 Franking a distribution with a venture capital credit

Subdivision 210‑B—Participating PDFs

Guide to Subdivision 210‑B

210‑35 What this Subdivision is about

Operative provisions

210‑40 What is a participating PDF

Subdivision 210‑C—Distributions that are frankable with a venture capital credit

Guide to Subdivision 210‑C

210‑45 What this Subdivision is about

Operative provisions

210‑50 Which distributions can be franked with a venture capital credit?

Subdivision 210‑D—Amount of the venture capital credit on a distribution

Guide to Subdivision 210‑D

210‑55 What this Subdivision is about

Operative provisions

210‑60 Amount of the venture capital credit on a distribution

Subdivision 210‑E—Distribution statements

Guide to Subdivision 210‑E

210‑65 What this Subdivision is about

Operative provisions

210‑70 Additional information to be included when a distribution is franked with a venture capital credit

Subdivision 210‑F—Rules affecting the allocation of venture capital credits

Guide to Subdivision 210‑F

210‑75 What this Subdivision is about

Operative provisions

210‑80 Draining the venture capital surplus when a distribution frankable with venture capital credits is made

210‑81 Distributions to be franked with venture capital credits to the same extent

210‑82 Consequences of breaching the rule in section 210‑81

Subdivision 210‑G—Venture capital sub‑account

Guide to Subdivision 210‑G

210‑85 What this Subdivision is about

210‑90 The venture capital sub‑account

210‑95 Venture capital deficit tax

Operative provisions

210‑100 Venture capital sub‑account

210‑105 Venture capital credits

210‑110 Determining the extent to which a franking credit is reasonably attributable to a particular payment of tax

210‑115 Participating PDF may elect to have venture capital credits arise on its assessment day

210‑120 Venture capital debits

210‑125 Venture capital debit where CGT limit is exceeded

210‑130 Venture capital surplus and deficit

210‑135 Venture capital deficit tax

210‑140 Effect of a liability to pay venture capital deficit tax on franking deficit tax

210‑145 Effect of a liability to pay venture capital deficit tax on the franking account

210‑150 Deferring venture capital deficit

Subdivision 210‑H—Effect of receiving a distribution franked with a venture capital credit

Guide to Subdivision 210‑H

210‑155 What this Subdivision is about

210‑160 The significance of a venture capital credit

210‑165 Recipients for whom the venture capital credit is not significant

Operative provisions

210‑170 Tax offset for certain recipients of distributions franked with venture capital credits

210‑175 Amount of the tax offset

210‑180 Application of Division 207 where the recipient is entitled to a tax offset under section 210‑170

Division 214—Administering the imputation system

Guide to Division 214 185

214‑1 Purpose of the system

214‑5 Key features

Subdivision 214‑A—Franking returns

Guide to Subdivision 214‑A

214‑10 What this Subdivision is about

Operative provisions

214‑15 Notice to give a franking return—general notice

214‑20 Notice to a specific corporate tax entity

214‑25 Content and form of a franking return

214‑30 Franking account balance

214‑35 Venture capital sub‑account balance

214‑40 Meaning of franking tax

214‑45 Effect of a refund on franking returns

Subdivision 214‑B—Franking assessments

Guide to Subdivision 214‑B

214‑55 What this Subdivision is about

Operative provisions

214‑60 Commissioner may make a franking assessment

214‑65 Commissioner taken to have made a franking assessment on first return

214‑70 Part‑year assessment

214‑75 Validity of assessment

214‑80 Objections

Subdivision 214‑C—Amending franking assessments

Guide to Subdivision 214‑C

214‑90 What this Subdivision is about

Operative provisions

214‑95 Amendments within 3 years of the original assessment

214‑100 Amended assessments are treated as franking assessments

214‑105 Further return as a result of a refund affecting a franking deficit tax liability

214‑110 Later amendments—on request

214‑115 Later amendments—failure to make proper disclosure

214‑120 Later amendments—fraud or evasion

214‑125 Further amendment of an amended particular

214‑135 Amendment on review etc.

214‑140 Notice of amendments

Subdivision 214‑D—Collection and recovery

Guide to Subdivision 214‑D

214‑145 What this Subdivision is about

Operative provisions

214‑150 Due date for payment of franking tax

214‑155 General interest charge

214‑160 Refunds of amounts overpaid

Subdivision 214‑E—Records

Guide to Subdivision 214‑E

214‑170 What this Subdivision is about

Operative provisions

214‑175 Record keeping

Division 215—Consequences of the debt/equity rules

Subdivision 215‑A—Application of the imputation system to non‑share equity interests

215‑1 Application of the imputation system to non‑share equity interests

Subdivision 215‑B—Non‑share dividends that are unfrankable to some extent

Guide to Subdivision 215‑B

215‑5 What this Subdivision is about

215‑10 Certain non‑share dividends by ADIs unfrankable

215‑15 Non‑share dividends are unfrankable if profits are unavailable

215‑20 Working out the available frankable profits

215‑25 Anticipating available frankable profits

Division 216—Cum dividend sales and securities lending arrangements

Subdivision 216‑A—Circumstances where a distribution to a member of a corporate tax entity is treated as having been made to someone else

216‑1 When a distribution made to a member of a corporate tax entity is treated as having been made to someone else

216‑5 First situation (cum dividend sales)

216‑10 Second situation (securities lending arrangements)

216‑15 Distribution closing time

Subdivision 216‑B—Statements to be made where there is a cum dividend sale or securities lending arrangement

216‑20 Cum dividend sale—statement by securities dealer

216‑25 Cum dividend sale—statement by party

216‑30 Securities lending arrangements—statement by borrower

Division 218—Application of imputation rules to co‑operative companies

218‑5 Application of imputation rules to co‑operative companies

Division 219—Imputation for life insurance companies

Guide to Division 219 214

219‑1 What this Division is about

Subdivision 219‑A—Application of imputation rules to life insurance companies

219‑10 Application of imputation rules to life insurance companies

Subdivision 219‑B—Franking accounts of life insurance companies

219‑15 Franking credits

219‑30 Franking debits

219‑40 Residency requirement

219‑45 Assessment day

219‑50 Amount attributable to shareholders’ share of income tax liability

219‑55 Adjustment resulting from an amended assessment

219‑70 Tax offset under section 205‑70

219‑75 Working out franking credits and franking debits where a tax offset under section 205‑70 is applied

Division 220—Imputation for NZ resident companies and related companies

Guide to Division 220 230

220‑1 What this Division is about

Subdivision 220‑A—Objects of this Division

220‑15 Objects

220‑20 What is an NZ resident?

Subdivision 220‑B—NZ company treated as Australian resident for imputation system if company chooses

220‑25 Application of provisions of Part 3‑6 outside this Division

220‑30 What is an NZ franking company?

220‑35 Making an NZ franking choice

220‑40 When is an NZ franking choice in force?

220‑45 Revoking an NZ franking choice

220‑50 Cancelling an NZ franking choice

Subdivision 220‑C—Modifications of other Divisions of this Part

Franking NZ franking companies’ distributions

220‑100 Residency requirement for franking

220‑105 Unfrankable distributions by NZ franking companies

220‑110 Maximum franking credit under section 202‑60

NZ franking companies’ franking accounts etc.

220‑205 Franking credit for payment of NZ franking company’s withholding tax liability

220‑210 Effect of franked distribution to NZ franking company or flowing indirectly to NZ franking company

220‑215 Effect on franking account if NZ franking choice ceases to be in force

Franking accounts of NZ franking company and some of its 100% subsidiaries

220‑300 NZ franking company’s franking account affected by franking accounts of some of its 100% subsidiaries

Effect of NZ franking company making distribution that is non‑assessable and non‑exempt

220‑350 Providing for a franking credit to arise

Effects of supplementary dividend from NZ franking company

220‑400 Gross‑up and tax offset for distribution from NZ franking company reduced by supplementary dividend

220‑405 Franked distribution and supplementary dividend flowing indirectly

220‑410 Franking credit reduced if tax offset reduced

Rules about exempting entities

220‑500 Publicly listed post‑choice NZ franking company and its 100% subsidiaries are not exempting entities

220‑505 Post‑choice NZ franking company is not automatically prescribed person

220‑510 Parent company’s status as prescribed person sets status of all other members of same wholly‑owned group

NZ franking companies’ exempting accounts

220‑605 Effect on exempting account if NZ franking choice ceases to be in force

Tax effect of distribution franked by NZ franking company with an exempting credit

220‑700 Tax effect of distribution franked by NZ franking company with an exempting credit

Joint and several liability for NZ resident company’s unmet franking liabilities

220‑800 Joint and several liability for NZ resident company’s franking tax etc.

Part 3‑10—Financial transactions

Division 230—Taxation of financial arrangements

Guide to Division 230 255

230‑1 What this Division is about

230‑5 Scope of this Division

Subdivision 230‑A—Core rules

Objects

230‑10 Objects of this Division

Tax treatment of gains and losses from financial arrangements

230‑15 Gains are assessable and losses deductible

230‑20 Gain or loss to be taken into account only once under this Act

230‑25 Associated financial benefits to be taken into account only once under this Act

230‑30 Treatment of gains and losses related to exempt income and non‑assessable non‑exempt income

230‑35 Treatment of gains and losses of private or domestic nature

Method to be applied to take account of gain or loss

230‑40 Methods for taking gain or loss into account

Financial arrangement concept

230‑45 Financial arrangement

230‑50 Financial arrangement (equity interest or right or obligation in relation to equity interest)

230‑55 Rights, obligations and arrangements (grouping and disaggregation rules)

General rules

230‑60 When financial benefit provided or received under financial arrangement

230‑65 Amount of financial benefit relating to more than one financial arrangement etc.

230‑70 Apportionment when financial benefit received or right ceases

230‑75 Apportionment when financial benefit provided or obligation ceases

230‑80 Consistency in working out gains or losses (integrity measure)

230‑85 Rights and obligations include contingent rights and obligations

Subdivision 230‑B—The accruals/realisation methods

Guide to Subdivision 230‑B

230‑90 What this Subdivision is about

Objects of Subdivision

230‑95 Objects of this Subdivision

When accruals method or realisation method applies

230‑100 When accruals method or realisation method applies

230‑105 Sufficiently certain overall gain or loss

230‑110 Sufficiently certain gain or loss from particular event

230‑115 Sufficiently certain financial benefits

230‑120 Financial arrangements with notional principal

The accruals method

230‑125 Overview of the accruals method

230‑130 Applying accruals method to work out period over which gain or loss is to be spread

230‑135 How gain or loss is spread

230‑140 Method of spreading gain or loss—effective interest method

230‑145 Application of effective interest method where differing income and accounting years

230‑150 Election for portfolio treatment of fees

230‑155 Election for portfolio treatment of fees where differing income and accounting years

230‑160 Portfolio treatment of fees

230‑165 Portfolio treatment of premiums and discounts for acquiring portfolio

230‑170 Allocating gain or loss to income years

230‑172 Applying accruals method to loss resulting from impairment

230‑175 Running balancing adjustments

Realisation method

230‑180 Realisation method

Reassessment and re‑estimation

230‑185 Reassessment

230‑190 Re‑estimation

230‑192 Re‑estimation—impairments and reversals

230‑195 Balancing adjustment if rate of return maintained on re‑estimation

230‑200 Re‑estimation if balancing adjustment on partial disposal

Subdivision 230‑C—Fair value method

230‑205 Objects of this Subdivision

230‑210 Fair value election

230‑215 Fair value election where differing income and accounting years

230‑220 Financial arrangements to which fair value election applies

230‑225 Financial arrangements to which election does not apply

230‑230 Applying fair value method to gains and losses

230‑235 Splitting financial arrangements into 2 financial arrangements

230‑240 When election ceases to apply

230‑245 Balancing adjustment if election ceases to apply

Subdivision 230‑D—Foreign exchange retranslation method

230‑250 Objects of this Subdivision

230‑255 Foreign exchange retranslation election

230‑260 Foreign exchange retranslation election where differing income and accounting years

230‑265 Financial arrangements to which general election applies

230‑270 Financial arrangements to which general election does not apply

230‑275 Balancing adjustment for election in relation to qualifying forex accounts

230‑280 Applying foreign exchange retranslation method to gains and losses

230‑285 When election ceases to apply

230‑290 Balancing adjustment if election ceases to apply

Subdivision 230‑E—Hedging financial arrangements method

230‑295 Objects of this Subdivision

230‑300 Applying hedging financial arrangement method to gains and losses

230‑305 Table of events and allocation rules

230‑310 Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item

230‑315 Hedging financial arrangement election

230‑320 Hedging financial arrangement election where differing income and accounting years

230‑325 Hedging financial arrangements to which election applies

230‑330 Hedging financial arrangements to which election does not apply

230‑335 Hedging financial arrangement and hedged item

230‑340 Generally whole arrangement must be hedging financial arrangement

230‑345 Requirements not satisfied because of honest mistake or inadvertence

230‑350 Derivative financial arrangement and foreign currency hedge

230‑355 Recording requirements

230‑360 Determining basis for allocating gain or loss

230‑365 Effectiveness of the hedge

230‑370 When election ceases to apply

230‑375 Balancing adjustment if election ceases to apply

230‑380 Commissioner may determine that requirement met

230‑385 Consequences of failure to meet requirements

Subdivision 230‑F—Reliance on financial reports

230‑390 Objects of this Subdivision

230‑395 Election to rely on financial reports

230‑400 Financial reports election where differing income and accounting years

230‑405 Commissioner discretion to waive requirements in paragraphs 230‑395(2)(c) and (e)

230‑410 Financial arrangements to which the election applies

230‑415 Financial arrangements not covered by election

230‑420 Effect of election to rely on financial reports

230‑425 When election ceases to apply

230‑430 Balancing adjustment if election ceases to apply

Subdivision 230‑G—Balancing adjustment on ceasing to have a financial arrangement

230‑435 When balancing adjustment made

230‑440 Exceptions

230‑445 Balancing adjustment

Subdivision 230‑H—Exceptions

230‑450 Short‑term arrangements where non‑money amount involved

230‑455 Certain taxpayers where no significant deferral

230‑460 Various rights and/or obligations

230‑465 Ceasing to have a financial arrangement in certain circumstances

230‑470 Forgiveness of commercial debts

230‑475 Clarifying exceptions

230‑480 Treatment of gains in form of franked distribution etc.

230‑481 Registered emissions units

Subdivision 230‑I—Other provisions

230‑485 Effect of change of residence—rules for particular methods

230‑490 Effect of change of residence—disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement

230‑495 Effect of change of accounting principles or standards

230‑500 Comparable foreign accounting and auditing standards

230‑505 Financial arrangement as consideration for provision or acquisition of a thing

230‑510 Non‑arm’s length dealings in relation to financial arrangement

230‑515 Arm’s length dealings in relation to financial arrangement—adjustment to gain or loss in certain situations

230‑520 Disregard gains or losses covered by value shifting regime

230‑522 Adjusting a gain or loss that gives rise to a hybrid mismatch

230‑525 Consolidated financial reports

230‑527 Elections—reporting documents of foreign ADIs

Subdivision 230‑J—Additional operation of Division

230‑530 Additional operation of Division

Division 235—Particular financial transactions

Guide to Division 235 407

235‑1 What this Division is about

Subdivision 235‑I—Instalment trusts

Guide to Subdivision 235‑I

235‑805 What this Subdivision is about

Operative provisions

235‑810 Object of this Subdivision

235‑815 Application of Subdivision

235‑820 Look‑through treatment for instalment trusts

235‑825 Meaning of instalment trust and instalment trust asset

235‑830 What trusts are covered—instalment trust arrangements

235‑835 Requirement for underlying investments to be listed or widely held

235‑840 What trusts are covered—limited recourse borrowings by regulated superannuation funds

235‑845 Interactions with other provisions

Division 240—Arrangements treated as a sale and loan

Guide to Division 240 414

240‑1 What this Division is about

240‑3 How the recharacterisation affects the notional seller

240‑7 How the recharacterisation affects the notional buyer

Subdivision 240‑A—Application and scope of Division

Operative provisions

240‑10 Application of this Division

240‑15 Scope of Division

Subdivision 240‑B—The notional sale and notional loan

Operative provisions

240‑17 Who is the notional seller and the notional buyer?

240‑20 Notional sale of property by notional seller and notional acquisition of property by notional buyer

240‑25 Notional loan by notional seller to notional buyer

Subdivision 240‑C—Amounts to be included in notional seller’s assessable income

Guide to Subdivision 240‑C

240‑30 What this Subdivision is about

Operative provisions

240‑35 Amounts to be included in notional seller’s assessable income

240‑40 Arrangement payments not to be included in notional seller’s assessable income

Subdivision 240‑D—Deductions allowable to notional buyer

Guide to Subdivision 240‑D

240‑45 What this Subdivision is about

Operative provisions

240‑50 Extent to which deductions are allowable to notional buyer

240‑55 Arrangement payments not to be deductions

Subdivision 240‑E—Notional interest and arrangement payments

Operative provisions

240‑60 Notional interest

240‑65 Arrangement payments

240‑70 Arrangement payment periods

Subdivision 240‑F—The end of the arrangement

Operative provisions

240‑75 When is the end of the arrangement?

240‑80 What happens if the arrangement is extended or renewed

240‑85 What happens if an amount is paid by or on behalf of the notional buyer to acquire the property

240‑90 What happens if the notional buyer ceases to have the right to use the property

Subdivision 240‑G—Adjustments if total amount assessed to notional seller differs from amount of interest

Guide to Subdivision 240‑G

240‑100 What this Subdivision is about

Operative provisions

240‑105 Adjustments for notional seller

240‑110 Adjustments for notional buyer

Subdivision 240‑H—Application of Division 16E to certain arrangements

240‑112 Division 16E applies to certain arrangements

Subdivision 240‑I—Provisions applying to hire purchase agreements

Operative provisions

240‑115 Another person, or no person taken to own property in certain cases

Division 242—Leases of luxury cars

Guide to Division 242 434

242‑1 What this Division is about

Subdivision 242‑A—Notional sale and loan

Guide to Subdivision 242‑A

242‑5 What this Subdivision is about

Operative provisions

242‑10 Application

242‑15 Notional sale and acquisition

242‑20 Consideration for notional sale, and cost, of car

242‑25 Notional loan by lessor to lessee

Subdivision 242‑B—Amount to be included in lessor’s assessable income

Guide to Subdivision 242‑B

242‑30 What this Subdivision is about

Operative provisions

242‑35 Amount to be included in lessor’s assessable income

242‑40 Treatment of lease payments

Subdivision 242‑C—Deductions allowable to lessee

Guide to Subdivision 242‑C

242‑45 What this Subdivision is about

Operative provisions

242‑50 Extent to which deductions are allowable to lessee

242‑55 Lease payments not deductible

Subdivision 242‑D—Adjustments if total amount assessed to lessor differs from amount of interest

Guide to Subdivision 242‑D

242‑60 What this Subdivision is about

Operative provisions

242‑65 Adjustments for lessor

242‑70 Adjustments for lessee

Subdivision 242‑E—Extension, renewal and final ending of the lease

Guide to Subdivision 242‑E

242‑75 What this Subdivision is about

Operative provisions

242‑80 What happens if the term of the lease is extended or the lease is renewed

242‑85 What happens if an amount is paid by the lessee to acquire the car

242‑90 What happens if the lessee stops having the right to use the car

Division 243—Limited recourse debt

Guide to Division 243 449

243‑10 What this Division is about

Subdivision 243‑A—Circumstances in which Division operates

Operative provisions

243‑15 When does this Division apply?

243‑20 What is limited recourse debt?

243‑25 When is a debt arrangement terminated?

243‑30 What is the financed property and the debt property?

Subdivision 243‑B—Working out the excessive deductions

Operative provisions

243‑35 Working out the excessive deductions

Subdivision 243‑C—Amounts included in assessable income and deductions

Operative provisions

243‑40 Amount included in debtor’s assessable income

243‑45 Deduction for later payments in respect of debt

243‑50 Deduction for payments for replacement debt

243‑55 Effect of Division on later capital allowance deductions

243‑57 Effect of Division on later capital allowance balancing adjustments

243‑58 Adjustment where debt only partially used for expenditure

Subdivision 243‑D—Special provisions

Operative provisions

243‑60 Application of Division to partnerships

243‑65 Application where partner reduces liability

243‑70 Application of Division to companies ceasing to be 100% subsidiary

243‑75 Application of Division where debt forgiveness rules also apply

Division 245—Forgiveness of commercial debts

Guide to Division 245 466

245‑1 What this Division is about

245‑2 Simplified outline of this Division

Subdivision 245‑A—Debts to which operative rules apply

Guide to Subdivision 245‑A

245‑5 What this Subdivision is about

Application of Division

245‑10 Commercial debts

245‑15 Non‑equity shares

245‑20 Parts of debts

Subdivision 245‑B—What constitutes forgiveness of a debt

Guide to Subdivision 245‑B

245‑30 What this Subdivision is about

Operative provisions

245‑35 What constitutes forgiveness of a debt

245‑36 What constitutes forgiveness of a debt if the debt is assigned

245‑37 What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt

245‑40 Forgivenesses to which operative rules do not apply

245‑45 Application of operative rules if forgiveness involves an arrangement

Subdivision 245‑C—Calculation of gross forgiven amount of a debt

Guide to Subdivision 245‑C

245‑48 What this Subdivision is about

Working out the value of a debt

245‑50 Extent of forgiveness if consideration is given

245‑55 General rule for working out the value of a debt

245‑60 Special rule for working out the value of a non‑recourse debt

245‑61 Special rule for working out the value of a previously assigned debt

Working out if an amount is offset against the value of the debt

245‑65 Amount offset against amount of debt

Working out the gross forgiven amount

245‑75 Gross forgiven amount of a debt

245‑77 Gross forgiven amount shared between debtors

Subdivision 245‑D—Calculation of net forgiven amount of a debt

Guide to Subdivision 245‑D

245‑80 What this Subdivision is about

Operative provisions

245‑85 Reduction of gross forgiven amount

245‑90 Agreement between companies under common ownership for creditor to forgo capital loss or deduction

Subdivision 245‑E—Application of net forgiven amounts

Guide to Subdivision 245‑E

245‑95 What this Subdivision is about

General operative provisions

245‑100 Subdivision not to apply to calculation of attributable income

245‑105 How total net forgiven amount is applied

Reduction of tax losses

245‑115 Total net forgiven amount is applied in reduction of tax losses

245‑120 Allocation of total net forgiven amount in respect of tax losses

Reduction of net capital losses

245‑130 Remaining total net forgiven amount is applied in reduction of net capital losses

245‑135 Allocation of remaining total net forgiven amount in respect of net capital losses

Reduction of expenditure

245‑145 Remaining total net forgiven amount is applied in reduction of expenditure

245‑150 Allocation of remaining total net forgiven amount in respect of expenditures

245‑155 How expenditure is reduced—straight line deductions

245‑157 How expenditure is reduced—diminishing balance deductions

245‑160 Amount applied in reduction of expenditure included in assessable income in certain circumstances

Reduction of cost bases of assets

245‑175 Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets

245‑180 Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets

245‑185 Relevant cost bases of investments in associated entities are reduced last

245‑190 Reduction of the relevant cost bases of a CGT asset

Unapplied total net forgiven amount

245‑195 No further consequences if there is any remaining unapplied total net forgiven amount

Subdivision 245‑F—Special rules relating to partnerships

Guide to Subdivision 245‑F

245‑200 What this Subdivision is about

Operative provisions

245‑215 Unapplied total net forgiven amount of a partnership is transferred to partners

Subdivision 245‑G—Record keeping

245‑265 Keeping and retaining records

Division 247—Capital protected borrowings

Guide to Division 247 499

247‑1 What this Division is about

Operative provisions

247‑5 Object of Division

247‑10 What capital protected borrowing and capital protection are

247‑15 Application of this Division

247‑20 Treating capital protection as a put option

247‑25 Number of put options

247‑30 Exercise or expiry of option

Division 250—Assets put to tax preferred use

Guide to Division 250 505

250‑1 What this Division is about

Subdivision 250‑A—Objects

250‑5 Main objects

Subdivision 250‑B—When this Division applies to you and an asset

Overall test

250‑10 When this Division applies to you and an asset

250‑15 General test

250‑20 First exclusion—small business entities

250‑25 Second exclusion—financial benefits under minimum value limit

250‑30 Third exclusion—certain short term or low value arrangements

250‑35 Exceptions to section 250‑30

250‑40 Fourth exclusion—sum of present values of financial benefits less than amount otherwise assessable

250‑45 Fifth exclusion—Commissioner determination

Tax preferred use of asset

250‑50 End user of an asset

250‑55 Tax preferred end user

250‑60 Tax preferred use of an asset

250‑65 Arrangement period for tax preferred use

250‑70 New tax preferred use at end of arrangement period if tax preferred use continues

250‑75 What constitutes a separate asset for the purposes of this Division

250‑80 Treatment of particular arrangements in the same way as leases

Financial benefits in relation to tax preferred use

250‑85 Financial benefits in relation to tax preferred use of an asset

250‑90 Financial benefit provided directly or indirectly

250‑95 Expected financial benefits in relation to an asset put to tax preferred use

250‑100 Present value of financial benefit that has already been provided

Discount rate to be used in working out present values

250‑105 Discount rate to be used in working out present values

Predominant economic interest

250‑110 Predominant economic interest

250‑115 Limited recourse debt test

250‑120 Right to acquire asset test

250‑125 Effectively non‑cancellable, long term arrangement test

250‑130 Meaning of effectively non‑cancellable arrangement

250‑135 Level of expected financial benefits test

250‑140 When to retest predominant economic interest under section 250‑135

Subdivision 250‑C—Denial of, or reduction in, capital allowance deductions

250‑145 Denial of capital allowance deductions

250‑150 Apportionment rule

Subdivision 250‑D—Deemed loan treatment of financial benefits provided for tax preferred use

250‑155 Arrangement treated as loan

250‑160 Financial benefits that are subject to deemed loan treatment

250‑180 End value of asset

250‑185 Financial benefits subject to deemed loan treatment not assessed

Subdivision 250‑E—Taxation of deemed loan

Guide to Subdivision 250‑E

250‑190 What this Subdivision is about

Application and objects of Subdivision

250‑195 Application of Subdivision

250‑200 Objects of this Subdivision

Tax treatment of gains and losses from financial arrangements

250‑205 Gains are assessable and losses deductible

250‑210 Gain or loss to be taken into account only once under this Act

Method to be applied to take account of gain or loss

250‑215 Methods for taking gain or loss into account

General rules

250‑220 Consistency in working out gains or losses (integrity measure)

250‑225 Rights and obligations include contingent rights and obligations

The accruals method

250‑230 Application of accruals method

250‑235 Overview of the accruals method

250‑240 Applying accruals method to work out period over which gain or loss is to be spread

250‑245 How gain or loss is spread

250‑250 Allocating gain or loss to income years

250‑255 When to re‑estimate

250‑260 Re‑estimation if balancing adjustment on partial disposal

Balancing adjustment

250‑265 When balancing adjustment made

250‑270 Exception for subsidiary member leaving consolidated group

250‑275 Balancing adjustment

Other provisions

250‑280 Financial arrangement received or provided as consideration

Subdivision 250‑F—Treatment of asset when Division ceases to apply to the asset

250‑285 Treatment of asset after Division ceases to apply to the asset

250‑290 Balancing adjustment under Subdivision 40‑D in some circumstances

Subdivision 250‑G—Objections against determinations and decisions by the Commissioner

250‑295 Objections against determinations and decisions by the Commissioner

Division 253—Financial claims scheme for account‑holders with insolvent ADIs

Subdivision 253‑A—Tax treatment of entitlements under financial claims scheme

Guide to Subdivision 253‑A

253‑1 What this Subdivision is about

Operative provisions

253‑5 Payment of entitlement under financial claims scheme treated as payment from ADI

253‑10 Disposal of rights against ADI to APRA and meeting of financial claims scheme entitlement have no CGT effects

253‑15 Cost base of financial claims scheme entitlement and any remaining part of account that gave rise to entitlement

Chapter 3—Specialist liability rules

Part 3‑6—The imputation system

Division 200—Guide to Part 3‑6

Guide to Division 200

200‑1  What this Division is about

This Division provides an overview of the imputation system.

Table of sections

200‑5 The imputation system

200‑10 Franking a distribution

200‑15 The franking account

200‑20 How a distribution is franked

200‑25 A corporate tax entity must not give its members credit for more tax than the entity has paid

200‑30 Benchmark rule

200‑35 Effect of receiving a franked distribution

200‑40 An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members

200‑45 Special rules for franking by some entities

200‑5  The imputation system

  The *imputation system partially integrates the income tax liabilities of an Australian corporate tax entity and its members by:

 (a) allowing the entity, when distributing profits to its members, to pass to those members credit for income tax paid by the entity on those profits; and

 (b) allowing the entity’s Australian members to claim a tax offset for that credit; and

 (c) allowing the entity’s Australian members to claim a refund if they are unable to fully utilise the tax offset in reducing their income tax.

200‑10  Franking a distribution

  When an Australian corporate tax entity distributes profits to its members, the entity has the option of passing to those members credit for income tax paid by the entity on the profits. This is done by franking the distribution.

200‑15  The franking account

 (1) A franking account is used to keep track of income tax paid by the entity, so that the entity can pass to its members the benefit of having paid that tax when a distribution is made.

 (2) Each corporate tax entity has a franking account.

 (3) Typically, a corporate tax entity receives a credit in the account if the entity pays income tax or receives a franked distribution. A credit in the franking account is called a franking credit.

 (4) Typically, a corporate tax entity receives a debit in the account if the entity receives a refund of tax or franks a distribution to its members. A debit in the franking account is called a franking debit.

200‑20  How a distribution is franked

 (1) A corporate tax entity franks a distribution by allocating a franking credit to it.

 (2) The amount of the franking credit on the distribution is the amount specified in a statement that accompanies the distribution.

 (3) Only some kinds of distribution can be franked. These are called frankable distributions.

200‑25  A corporate tax entity must not give its members credit for more tax than the entity has paid

 (1) A corporate tax entity must not frank a distribution from profits with a franking credit that exceeds the maximum amount of income tax that could have been paid, at the entity’s corporate tax rate for imputation purposes for the income year in which the distribution is made, on the profits distributed.

 (2) If a distribution is franked in excess of this limit, the entity will be taken to have franked the distribution with the maximum franking credit for the distribution.

200‑30  Benchmark rule

 (1) All frankable distributions made within a particular period must be franked to the same extent. This is the benchmark rule.

 (2) It is designed to ensure that one member of a corporate tax entity is not preferred over another by the manner in which distributions are franked.

200‑35  Effect of receiving a franked distribution

 (1) Under Division 207, if an Australian member of a corporate tax entity receives a franked distribution, the member can usually offset, against the member’s own income tax liability, income tax paid by the entity on the profits underlying the distribution.

 (2) The tax offset to which the member is entitled is equal to the franking credit on the distribution.

Note 1: A member may be entitled to a refund under Division 67 if the sum of the tax offset and certain other tax offsets exceeds the amount of income tax that the member would have to pay if the member had not got those tax offsets.

Note 2: If the member is not a resident, the tax effects of receiving a distribution will be dealt with under Division 11A of Part III of the Income Tax Assessment Act 1936, and Subdivision 207‑D of this Part.

200‑40  An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members

  If an Australian corporate tax entity receives a franked distribution, it can pass the benefit of having received a franking credit on the distribution to its own members by franking distributions to those members.

200‑45  Special rules for franking by some entities

  There are special rules to deal with:

 (a) venture capital franking by a pooled development fund; and

 (b) franking by life insurance companies; and

 (c) franking by exempting companies and former exempting companies; and

 (d) franking by co‑operative companies; and

 (e) franking by companies that are NZ residents or members of the same wholly‑owned group as one or more companies that are NZ residents.

Division 201—Objects and application of Part 3‑6

Table of sections

201‑1 Objects

201‑5 Application of this Part

201‑1  Objects

 (1) The main object of this Part is to allow certain *corporate tax entities to pass to their *members the benefit of having paid income tax on the profits underlying certain *distributions.

 (2) The other objects of this Part are to ensure that:

 (a) the imputation system is not used to give the benefit of income tax paid by a *corporate tax entity to *members who do not have a sufficient economic interest in the entity; and

 (b) the imputation system is not used to prefer some members over others when passing on the benefits of having paid income tax; and

 (c) the *membership of a corporate tax entity is not manipulated to create either of the outcomes mentioned in paragraphs (a) and (b).

201‑5  Application of this Part

  Subject to the rules on the application of this Part set out in the Income Tax (Transitional Provisions) Act 1997, this Part applies to events that occur on or after 1 July 2002.

Division 202—Franking a distribution

Table of Subdivisions

202‑A Franking a distribution

202‑B Who can frank a distribution?

202‑C Which distributions can be franked?

202‑D Amount of the franking credit on a distribution

202‑E Distribution statements

Subdivision 202‑A—Franking a distribution

Guide to Subdivision 202‑A

202‑1  What this Subdivision is about

An entity can only frank a distribution if certain conditions are met. These conditions are set out in this Subdivision.

Table of sections

Operative provisions

202‑5 Franking a distribution

Operative provisions

202‑5  Franking a distribution

  An entity franks a *distribution if:

 (a) the entity is a *franking entity that satisfies the *residency requirement when the distribution is made; and

 (b) the distribution is a *frankable distribution; and

 (c) the entity allocates a *franking credit to the distribution.

Note 1: Division 205 deals with a corporate tax entity’s franking account and sets out when credits, known as franking credits, and debits, known as franking debits, arise in that account.

Note 2: The mechanism by which an entity allocates a franking credit to a distribution (for example, whether it is done by resolution or some other means) is determined by the entity.

Subdivision 202‑B—Who can frank a distribution?

Guide to Subdivision 202‑B

202‑10  What this Subdivision is about

Table of sections

Operative provisions

202‑15 Franking entities

202‑20 Residency requirement when making a distribution

Operative provisions

202‑15  Franking entities

  An entity is a franking entity at a particular time if:

 (a) it is a *corporate tax entity at that time; and

 (b) it is not a *life insurance company that is a *mutual insurance company at that time; and

 (c) in a case where the entity is a company that is a trustee of a trust—it is not acting in its capacity as trustee of the trust at that time.

202‑20  Residency requirement when making a distribution

  An entity satisfies the residency requirement when making a *distribution if:

 (a) in the case of a company—the company is an Australian resident at that time; and

 (b) in the case of a *corporate limited partnership—the corporate limited partnership is an Australian resident at that time; and

 (d) in the case of a *public trading trust—the public trading trust is a resident unit trust for the income year in which that time occurs.

Subdivision 202‑C—Which distributions can be franked?

Guide to Subdivision 202‑C

202‑25  What this Subdivision is about

Table of sections

202‑30 Frankable distributions

Operative provisions

202‑35 Object

202‑40 Frankable distributions

202‑45 Unfrankable distributions

202‑47 Distributions of certain ADI profits following restructure

202‑30  Frankable distributions

  Distributions and non‑share dividends are frankable unless it is specified that they are unfrankable.

Operative provisions

202‑35  Object

  The object of this Subdivision is to ensure that only distributions equivalent to realised taxed profits can be franked.

202‑40  Frankable distributions

 (1) A *distribution is a frankable distribution, to the extent that it is not unfrankable under section 202‑45.

 (2) A *non‑share dividend is a frankable distribution, to the extent that it is not unfrankable under section 202‑45.

202‑45  Unfrankable distributions

  The following are unfrankable:

 (c) where the purchase price on the buy‑back of a *share by a *company from one of its *members is taken to be a dividend under section 159GZZZP of that Act—so much of that purchase price as exceeds what would be the market value (as normally understood) of the share at the time of the buy‑back if the buy‑back did not take place and were never proposed to take place;

 (d) a distribution in respect of a *non‑equity share;

 (e) a distribution that is sourced, directly or indirectly, from a company’s *share capital account;

 (f) an amount that is taken to be an unfrankable distribution under section 215‑10 or 215‑15;

 (g) an amount that is taken to be a dividend for any purpose under any of the following provisions:

 (i) unless subsection 109RB(6) or 109RC(2) applies in relation to the amount—Division 7A of Part III of that Act (distributions to entities connected with a *private company);

 (iii) section 109 of that Act (excessive payments to shareholders, directors and associates);

 (iv) section 47A of that Act (distribution benefits—CFCs);

 (h) an amount that is taken to be an unfranked dividend for any purpose:

 (i) under section 45 of that Act (streaming bonus shares and unfranked dividends);

 (ii) because of a determination of the Commissioner under section 45C of that Act (streaming dividends and capital benefits);

 (i) a *demerger dividend;

 (j) a distribution that section 152‑125 or 220‑105 says is unfrankable.

202‑47  Distributions of certain ADI profits following restructure

 (1) This section applies to an amount paid by a body corporate if:

 (a) the body corporate is a non‑operating holding company within the meaning of the Financial Sector (Transfer and Restructure) Act 1999; and

 (b) a restructure instrument under Part 4A of that Act is in force in relation to the body; and

 (c) because of the restructure to which the instrument relates, an *ADI becomes a subsidiary (within the meaning of that Act) of the body; and

 (d) the amount is sourced, directly or indirectly, from the profits of the ADI before the restructure instrument came into force; and

 (e) the amount would have been a *frankable distribution if it had been distributed by the ADI before the restructure instrument came into force.

 (2) The amount:

 (a) is taken to be a dividend paid by the body, for the purposes of this Act (and so is a *distribution by the body); and

 (b) is not taken to be an *unfrankable distribution by the body just because of paragraph 202‑45(e) (which makes distributions from *share capital accounts unfrankable).

Subdivision 202‑D—Amount of the franking credit on a distribution

Guide to Subdivision 202‑D

202‑50  What this Subdivision is about

Table of sections

202‑55 What is the maximum franking credit for a frankable distribution?

Operative provisions

202‑60 Amount of the franking credit on a distribution

202‑65 Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution

202‑55  What is the maximum franking credit for a frankable distribution?

  The maximum franking credit for a distribution is equivalent to the maximum amount of income tax that the entity making the distribution could have paid, at the entity’s corporate tax rate for imputation purposes for the income year in which the distribution is made, on the profits underlying the distribution.

Operative provisions

202‑60  Amount of the franking credit on a distribution

 (1) The amount of the *franking credit on a *distribution is that stated in the *distribution statement for the distribution, unless that amount exceeds the *maximum franking credit for the distribution.

 (2) The maximum franking credit for a *distribution is worked out using the formula:

where:

applicable gross‑up rate means the *corporate tax gross‑up rate of the entity making the distribution for the income year in which the distribution is made.

202‑65  Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution

  If the amount of a *franking credit stated in a *distribution statement for a *distribution exceeds the *maximum franking credit for the distribution, the amount of the franking credit on the distribution is taken to be the amount of the maximum franking credit for the distribution, and not the amount stated in the distribution statement.

Subdivision 202‑E—Distribution statements

Guide to Subdivision 202‑E

202‑70  What this Subdivision is about

An entity that makes a frankable distribution must give the recipient a statement setting out details of the distribution.

Table of sections

Operative provisions

202‑75 Obligation to give a distribution statement

202‑80 Distribution statement

202‑85 Changing the franking credit on a distribution by amending the distribution statement

Operative provisions

202‑75  Obligation to give a distribution statement

 (1) An entity that makes a *frankable distribution must give the recipient a *distribution statement.

 (2) The statement must be given on or before the day on which the *distribution is made, unless the entity is allowed to give the statement at a later time under subsection (3).

 (3) If the entity is a *private company for the income year in which the *distribution is made, the statement must be given:

 (a) before the end of 4 months after the end of the income year in which the distribution is made; or

 (b) before the time determined by the Commissioner under subsection (5);

whichever is later.

 (4) However, the entity is not allowed to give the statement at a later time under subsection (3) if the statement indicates that a *franking credit has been allocated to the *distribution and the franking credit would, either alone or when added to other franking credits allocated to other distributions made by the entity during the income year, result in the entity having a liability for *franking deficit tax, or an increased liability for franking deficit tax, at the end of the income year.

Note: The combined effect of subsections (3) and (4) is that a private company can retrospectively frank a distribution, but not so as to create or increase a liability for franking deficit tax.

 (5) The Commissioner may determine in writing that a *private company may give the statement before a time specified in the determination.

202‑80  Distribution statement

 (1) A distribution statement is a statement made in accordance with this section.

 (2) The statement must be in the *approved form.

 (3) The statement must:

 (a) identify the entity making the distribution; and

 (b) state the date on which the distribution is made; and

 (c) state the amount of the distribution; and

 (d) state that there is a *franking credit of an amount specified on the distribution; and

 (e) state the *franking percentage for the distribution; and

 (f) state the amount of any *withholding tax that has been deducted from the distribution by the entity; and

 (g) include any other information required by the *approved form that is relevant to imputation generally or the distribution.

Note: Under the Taxation Administration Act 1953 it is an offence to fail to give a statement required under this Subdivision, or make a misleading statement in connection with a distribution (whether franked or not).

202‑85  Changing the franking credit on a distribution by amending the distribution statement

Changing the franking credit on a specified distribution

 (1) The Commissioner may, on application by an entity, determine in writing that the entity may change the *franking credit on a specified *distribution by amending the *distribution statement for the distribution.

 (2) In deciding whether to make a determination under subsection (1), the Commissioner must have regard to:

 (a) whether the date for lodgment of an *income tax return by the recipient of the specified *distribution for the income year in which the distribution was made has passed; and

 (b) whether, if the *franking credit on the specified distribution were changed in accordance with the entity’s application, there would be any difference in the *withholding tax liability of the recipient; and

 (c) whether amending the distribution statement as requested by the entity would lead to a breach of the *benchmark rule, or any of the rules in Division 204 (the anti‑streaming rules); and

 (d) whether amending the distribution statement as requested by the entity would lead to a new *benchmark franking percentage being set for the entity for the *franking period in which the distribution was made; and

 (e) any other matters that the Commissioner considers relevant.

Changing the franking credits on a specified class of distributions

 (3) The Commissioner may, on application by an entity, determine in writing that the entity may change the *franking credits on *distributions of a specified class by amending the *distribution statements for the distributions.

 (4) In deciding whether to make a determination under subsection (3), the Commissioner must have regard to:

 (a) the number of recipients to whom an amended *distribution statement would be made; and

 (b) whether the date for lodgment of *income tax returns by recipients of *distributions of the specified class for the income year in which the distributions were made has passed; and

 (c) whether, if the *franking credit on the specified distributions were changed in accordance with the entity’s application, there would be any difference in the *withholding tax liability of the recipients; and

 (d) whether amending the distribution statements as requested by the entity would lead to a breach of the *benchmark rule, or any of the rules in Division 204 (the anti‑streaming rules); and

 (e) whether amending the distribution statements as requested by the entity would lead to a new *benchmark franking percentage being set for the entity for the *franking period in which the distributions were made; and

 (f) any other matters that the Commissioner considers relevant.

Applying to the Commissioner

 (5) The entity must:

 (a) make its application under this section in writing; and

 (b) include in the application all information relevant to the matters to which the Commissioner must have regard under:

 (i) subsection (2), if the application relates to a *distribution; or

 (ii) subsection (4), if the application relates to a class of distributions.

Review

 (6) If the entity or a *member of the entity is dissatisfied with a determination under subsection (3), the entity or member may object to it in the manner set out in Part IVC of the Taxation Administration Act 1953.

Division 203—Benchmark rule

Guide to Division 203

203‑1  What this Division is about

Distributions within a particular period must all be franked to the same extent.

Table of sections

203‑5 Benchmark rule

203‑10 Benchmark franking percentage

Operative provisions

203‑15 Object

203‑20 Application of the benchmark rule

203‑25 Benchmark rule

203‑30 Setting a benchmark franking percentage

203‑35 Franking percentage

203‑40 Franking periods—where the entity is not a private company

203‑45 Franking period—private companies

203‑50 Consequences of breaching the benchmark rule

203‑55 Commissioner’s powers to permit a departure from the benchmark rule

203‑5  Benchmark rule

 (1) A corporate tax entity must frank all frankable distributions made within a particular period at a franking percentage set as the benchmark for that period. This is the benchmark rule.

 (2) The benchmark rule does not apply to some corporate tax entities. Those entities are identified in section 203‑20.

203‑10  Benchmark franking percentage

 (1) The benchmark franking percentage for an entity is set by reference to the franking percentage for the first frankable distribution made by the entity during the relevant period.

 (2) An entity has a benchmark franking percentage, even if it is not subject to the benchmark rule.

Operative provisions

203‑15  Object

  The object of this Subdivision is to ensure that one *member of a *corporate tax entity is not preferred over another when the entity *franks *distributions.

203‑20  Application of the benchmark rule

 (1) The *benchmark rule does not apply to a company in a *franking period if either:

 (a) the company satisfies each of the following criteria:

 (i) at all times during the franking period, the company is a *listed public company;

 (ii) the company cannot make a *distribution on one *membership interest during the franking period without making a distribution under the same resolution on all other membership interests;

 (iii) the company cannot *frank a distribution made on one membership interest during the franking period without franking distributions made on all other membership interests under the same resolution with a *franking credit worked out using the same *franking percentage; or

 (b) the entity is a *100% subsidiary of a company that satisfies the criteria set out in paragraph (a).

 (2) The following are examples of cases in which a company satisfies the criteria set out in paragraph (1)(a):

 (a) the company is a *listed public company with a single *class of *membership interest at all times during the relevant *franking period;

 (b) the company is a listed public company that, under its constituent documents, must not:

 (i) make a *distribution on one membership interest during the relevant franking period without making a distribution under the same resolution on all other membership interests; or

 (ii) *frank a distribution made on one membership interest during the relevant franking period without franking distributions made on all other membership interests under the same resolution with a *franking credit worked out using the same *franking percentage;

 (c) the company is a listed public company with more than one class of membership interest, but the rights in relation to distributions and the franking of distributions are the same for each class of membership interest.

This is not an exhaustive list.

 (3) For the purposes of subsection (1), ignore *membership interests that do not carry a right to receive *distributions (other than distributions on the winding up of the company).

203‑25  Benchmark rule

  An entity must not make a *frankable distribution whose *franking percentage differs from the entity’s *benchmark franking percentage for the *franking period in which the distribution is made. This is the benchmark rule.

Note: If a corporate tax entity franks a distribution in breach of this rule, the distribution will still be a franked distribution, although consequences will flow under section 203‑50.

203‑30  Setting a benchmark franking percentage

  The benchmark franking percentage for an entity for a *franking period is the same as the *franking percentage for the first *frankable distribution made by the entity within the period.

Note: If no frankable distribution is made during the period, there is no benchmark franking percentage for the period.

203‑35  Franking percentage

 (1) Subject to subsection (2), the franking percentage for a *frankable distribution is worked out using the formula:

 (2) If the *franking percentage for a *frankable distribution would exceed 100% if it were worked out under subsection (1), it is taken to be 100%.

203‑40  Franking periods—where the entity is not a private company

 (1) Use this section to work out the franking periods for an entity in an income year where the entity is not a *private company for the income year.

 (2) If the entity’s income year is a period of 12 months, each of the following is a franking period for the entity in that year:

 (a) the period of 6 months beginning at the start of the entity’s income year;

 (b) the remainder of the income year.

 (3) If the entity’s income year is a period of 6 months or less, the franking period for the entity in that year is the same as the income year.

 (4) If the entity’s income year is a period of more than 6 months and less than 12 months, each of the following is a franking period for the entity in that year:

 (a) the period of 6 months beginning at the start of the entity’s income year;

 (b) the remainder of the income year.

 (5) If the entity’s income year is a period of more than 12 months, each of the following is a franking period for the entity in that year:

 (a) the period of 6 months beginning at the start of the entity’s income year (the first franking period);

 (b) the period of 6 months beginning immediately after the end of the first franking period;

 (c) the remainder of the income year.

203‑45  Franking period—private companies

  The franking period for an entity that is a *private company for an income year is the same as the income year.

203‑50  Consequences of breaching the benchmark rule

 (1) If an entity makes a *frankable distribution in breach of the *benchmark rule:

 (a) the entity is liable to pay over‑franking tax imposed by the New Business Tax System (Over‑franking Tax) Act 2002 if the *franking percentage for the *distribution exceeds the entity’s *benchmark franking percentage for the *franking period in which the distribution is made; and

 (b) a *franking debit arises in the entity’s *franking account if the franking percentage for the distribution is less than the entity’s benchmark franking percentage for the franking period in which the distribution is made.

 (2) Use the following formula to work out:

 (a) in a case dealt with under paragraph (1)(a)—the amount of the *over‑franking tax; and

 (b) in a case dealt with under paragraph (1)(b)—the amount of the *franking debit:

where:

applicable gross‑up rate means the *corporate tax gross‑up rate of the entity making the distribution for the income year in which the distribution is made.

franking % differential is the difference between:

 (a) the *franking percentage for the *frankable distribution; and

 (b) either:

 (i) if subparagraph (ii) does not apply—the entity’s *benchmark franking percentage for the *franking period in which the *distribution is made; or

 (ii) if the Commissioner in the exercise of the Commissioner’s powers under subsection 203‑55(1), permits the entity to frank the distribution at a different franking percentage—that percentage.

Example: An entity makes 3 successive frankable distributions in a franking period. Each of those distributions is represented in the following diagram. The franking percentage for the first distribution is 40%, and so the entity’s benchmark franking percentage for the period is 40%.

Note: Distribution 2 is under‑franked to the extent of the franking % differential. This is used to work out the amount of the under‑franking debit under subsection (2).

 Distribution 3 is over‑franked to the extent of the franking % differential. This is used to work out the amount of over‑franking tax on the distribution under the New Business Tax System (Over‑franking Tax) Act 2002. The amount of the tax is calculated using the same formula as that set out in subsection (2).

 (3) A *franking debit arising under paragraph (1)(b) is in addition to any franking debit that would otherwise arise for the entity because of the *distribution.

 (4) The *franking debit arises on the day on which the *frankable distribution is made.

203‑55  Commissioner’s powers to permit a departure from the benchmark rule

Powers of the Commissioner

 (1) The Commissioner may, on application by an entity, make a determination in writing permitting the entity to *frank a *distribution at a *franking percentage that differs from the entity’s *benchmark franking percentage for the *franking period in which the distribution is made.

 (2) Because the *benchmark rule is an integral part of the imputation system, the Commissioner’s powers under this section may only be exercised in extraordinary circumstances.

Matters to which the Commissioner must have regard in exercising the power

 (3) In deciding whether there are extraordinary circumstances justifying the exercise of the Commissioner’s power to make a determination under subsection (1), the Commissioner must have regard to:

 (a) the entity’s reasons for departing, or proposing to depart, from the *benchmark rule; and

 (b) the extent of the departure, or proposed departure, from the benchmark rule; and

 (c) if the circumstances that give rise to the entity’s application are within the entity’s control, the extent to which the entity has sought the exercise of the Commissioner’s powers under this section in the past; and

 (d) whether a *member of the entity has been or will be disadvantaged as a result of the departure, or proposed departure, from the benchmark rule; and

 (e) whether a *member of the entity will receive greater *imputation benefits than another member of the entity because a distribution *franked at a *franking percentage that differs from the *benchmark franking percentage for the *franking period is made to one of them; and

 (f) any other matters that the Commissioner considers relevant.

When may the powers be exercised?

 (4) The Commissioner may make a determination under subsection (1) either before or after the *frankable distribution is made.

Consequence of the Commissioner exercising the power under this section

 (5) An allocation of a *franking credit at a percentage specified by the Commissioner in a determination under subsection (1) is taken to comply with the *benchmark rule.

Applying to the Commissioner

 (6) The entity must:

 (a) make its application under this section in writing; and

 (b) include in the application all information relevant to the matters to which the Commissioner must have regard under subsection (3).

Review

 (7) If the entity or a *member of the entity is dissatisfied with the determination under subsection (1), the entity or member may object to it in the manner set out in Part IVC of the Taxation Administration Act 1953.

Division 204—Anti‑streaming rules

Table of Subdivisions

204‑A Objects and application

204‑B Linked distributions

204‑C Substituting tax‑exempt bonus share for franked distributions

204‑D Streaming distributions

204‑E Disclosure requirements

Subdivision 204‑A—Objects and application

Table of sections

204‑1 Objects

204‑5 Application to non‑share dividends

204‑1  Objects

  The objects of this Division are to ensure that:

 (a) an entity and its *members cannot avoid the effect of the *benchmark rule by exploiting the *benchmark franking percentage of another entity; and

 (b) an entity does not stream *franked distributions and *tax‑exempt bonus shares; and

 (c) an entity does not stream *distributions to members of the entity who *derive a *greater benefit from franking credits than other members.

204‑5  Application

 (1) The rules in this Division will apply to an entity even if it is not subject to the benchmark rule.

 (2) This Division applies to non‑share dividends in the same way as it applies to distributions.

Subdivision 204‑B—Linked distributions

Guide to Subdivision 204‑B

204‑10  What this Subdivision is about

This Subdivision prevents the exploitation of a corporate tax entity’s benchmark franking percentage by another corporate tax entity, or that other entity’s members, by imposing a franking debit where there is exploitation.

Table of sections

Operative provisions

204‑15 Linked distributions

Operative provisions

204‑15  Linked distributions

Franking debit arises where a distribution by one entity is substituted for a distribution by another

 (1) This section gives rise to a *franking debit if:

 (a) the exercise of a choice or selection by a *member of an entity (the first entity); or

 (b) the member’s failure to exercise a choice or selection;

has the effect of determining (to any extent) that another entity makes to one of its members a *distribution (the linked distribution) that is:

 (c) in substitution (in whole or in part) for a distribution by the first entity to that member or any other member of the first entity; and

 (d) unfranked, or *franked at a *franking percentage that differs from the first entity’s *benchmark franking percentage for the *franking period in which the linked distribution is made.

Note: Division 205 deals with a corporate tax entity’s franking account and sets out when a debit, known as a franking debit, arises in that account.

Franking account in which the debit arises

 (2) The debit arises in the *franking account of the entity with the higher *benchmark franking percentage for the *franking period in which the linked distribution is made.

Amount of the debit

 (3) The debit is equal to the one that would arise in that *franking account if the entity had made a *franked distribution, equal to the linked distribution, with a *franking percentage equal to the *benchmark franking percentage for that entity.

When does the debit arise

 (4) The debit arises on the day on which the linked distribution is made.

Debit is in addition to any other franking debit arising because of the linked distribution

 (5) The debit is in addition to any other debit that arises in an entity’s *franking account because of the linked distribution.

Where an entity has no benchmark franking percentage

 (6) If an entity has no *benchmark franking percentage for the *franking period in which the linked distribution is made, this section applies as if:

 (a) in a case where the linked distribution has a *franking percentage of less than 50%—the entity had a benchmark franking percentage of 100% for that period; and

 (b) in a case where the linked distribution has a franking percentage equal to or greater than 50%—the entity had a benchmark franking percentage of 0% for that period.

Subdivision 204‑C—Substituting tax‑exempt bonus share for franked distributions

Guide to Subdivision 204‑C

204‑20  What this Subdivision is about

This Subdivision prevents the substitution of a tax‑exempt bonus share for a franked distribution by imposing a franking debit on the issue of the share as if it were a franked distribution.

Table of sections

Operative provisions

204‑25 Substituting tax‑exempt bonus shares for franked distributions

Operative provisions

204‑25  Substituting tax‑exempt bonus shares for franked distributions

Franking debit arises if tax‑exempt bonus shares are issued in substitution for a franked distribution

 (1) This section gives rise to a *franking debit in an entity’s *franking account if:

 (a) the exercise of a choice or selection by a *member of the entity; or

 (b) the member’s failure to exercise a choice or selection;

has the effect of determining (to any extent) that the entity issues one or more *tax‑exempt bonus shares, to that member or another member of the entity, in substitution (in whole or in part) for one or more *franked distributions by the entity to that member or another member.

Amount of the debit

 (2) The debit is equal to the one that would arise in the entity’s *franking account if the entity made a *distribution, equal to the *franked distributions referred to in subsection (1), franked at the entity’s *benchmark franking percentage for the *franking period in which the shares are issued.

When does the debit arise

 (3) The debit arises on the day when the shares are issued.

Meaning of tax‑exempt bonus share

 (4) For a company whose *shares have no par value, tax‑exempt bonus share means a share issued by the company in the circumstances mentioned in subsection 6BA(6) of the Income Tax Assessment Act 1936.

 (5) For any other company, tax‑exempt bonus share means a *share issued by the company to a *shareholder in the company where:

 (a) the amount or value of the share is debited against an amount standing to the credit of a share premium account of the company; and

 (b) no part of the paid‑up value of the share is a dividend; and

 (c) the share is issued:

 (i) as a bonus share; or

 (ii) in the circumstances mentioned in subsection 6BA(1) of the Income Tax Assessment Act 1936, as in force immediately before 1 July 1998.

Where a company has no benchmark franking percentage for the franking period

 (6) If a company has no *benchmark franking percentage for the *franking period in which the *tax‑exempt bonus share is issued, this section applies as if the entity had a benchmark franking percentage of 100% for that period.

Subdivision 204‑D—Streaming distributions

Guide to Subdivision 204‑D

204‑26  What this Subdivision is about

This Subdivision prevents the streaming of imputation benefits to one member of a corporate tax entity in preference to another by either imposing a franking debit or denying an imputation benefit where there is streaming.

Table of sections