CHAPTER 3
-
SPECIALIST LIABILITY RULES
PART 3-6
-
THE IMPUTATION SYSTEM
History
Pt 3-6 inserted by No 48 of 2002.
Division 207
-
Effect of receiving a franked distribution
History
Div 207 inserted by No 48 of 2002.
Subdivision 207-B
-
Franked distribution received through certain partnerships and trustees
History
Subdiv 207-B substituted by No 83 of 2004, s 3 and Sch 10 item 7, applicable to events that occur on or after 1 July 2002, subject to the rules on the application of Part 3-6 of the
Income Tax Assessment Act 1997
set out in the
Income Tax (Transitional Provisions) Act 1997
. Subdiv 207-B formerly read:
Subdivision 207-B
-
Effect of receiving a franked distribution through certain partnerships and trusts
What this Subdivision is about
207-25
A franked distribution to certain partnerships and trusts is treated as flowing indirectly to members of the partnership or trust.
Each member's share of the franking credit on the distribution is included in that member's assessable income.
Each member is then given a tax offset equal to that share of the franking credit, provided the member is not itself a partnership or trust through which the distribution flows indirectly.
Where the trustee, rather than a member, is the taxpayer on a share of the distribution, it is the trustee in that capacity who is given the tax offset under this Subdivision.
History
S 207-25 inserted by No 48 of 2002.
Applying this Subdivision
207-30
This Subdivision applies subject to:
(a)
Subdivision 207-E; and
(b)
Subdivision 207-F.
Note 1: Subdivision 207-D also contains adjustments to deal with cases where a distribution flows indirectly to an entity that is not a resident.
Note 2: Subdivision 207-E sets out cases in which the rules in this Subdivision will not apply because the distribution is exempt income or non-assessable non-exempt income and so would not be taxed in any case. It also replaces the rules in this Subdivision where the distribution flows indirectly to exempt institutions that are eligible for a refund and, in some cases, to eligible entities within the meaning of Part IX of the
Income Tax Assessment Act 1936
and to life insurance companies.
Note 3: Subdivision 207-F sets out cases in which the rules in this Subdivision will not apply because the imputation system has been manipulated in a way that is not permitted under income tax law, for example by streaming distributions or dividend stripping.
History
S 207-30 amended by No 66 of 2003 and inserted by No 48 of 2002.
When a franked distribution flows indirectly to an entity
207-35(1)
This section sets out the only circumstances in which a *franked distribution is taken to
flow indirectly
to an entity in an income year.
Partners
207-35(2)
The distribution
flows indirectly
to the entity in the income year if:
(a)
the entity is a partner in a *partnership; and
(b)
either:
(i)
a share of the *net income of the partnership is included in the entity's assessable income for the income year under subsection
92(1)
of the
Income Tax Assessment Act 1936
; or
(ii)
a share of the *partnership loss of the partnership is allowable as a deduction for the income year to the partner under subsection 92(2) of that Act; and
(c)
the whole or a part of that share of the net income or partnership loss of the partnership is attributable to:
(i)
an amount included in the assessable income of the partnership because the distribution is made to the partnership; or
(ii)
an amount included in the assessable income of the partnership because of the distribution and in circumstances where the distribution flows indirectly to the partnership because of one or more previous applications of this section.
Beneficiaries of trusts
207-35(3)
The distribution
flows indirectly
to the entity in the income year if:
(a)
the entity is a beneficiary of a trust; and
(b)
a share of the *net income of the trust is included in the entity's assessable income for the income year under section 97,
98A
or
100
of the
Income Tax Assessment Act 1936
; and
(c)
the whole or a part of that share of the net income of the trust is attributable to:
(i)
an amount included in the assessable income of the trust because the distribution is made to the trustee of the trust; or
(ii)
an amount included in the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section; or
(iii)
an amount allowed as a deduction from the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section.
Trustees liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936
207-35(4)
The distribution
flows indirectly
to the entity in an income year if:
(a)
the entity is a trustee of a trust; and
(b)
the entity is:
(i)
liable to be assessed under section 98 of the
Income Tax Assessment Act 1936
in respect of a share of the *net income of the trust for the income year; or
(ii)
liable to be assessed under section
99
or
99A
of the
Income Tax Assessment Act 1936
in respect of the net income, or a part of the net income, of the trust for the income year; and
(c)
the whole or a part of the amount on which the entity is liable to be assessed under that section is attributable to:
(i)
an amount included in the assessable income of the trust because the distribution is made to the trustee of the trust; or
(ii)
an amount included in the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section; or
(iii)
an amount allowed as a deduction from the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section.
History
S 207-35 inserted by No 48 of 2002.
Effect on assessable income where distribution flows indirectly
207-40(1)
Where:
(a)
a *franked distribution is made to a *partnership; and
(b)
the distribution *flows indirectly to a partner in the partnership;
then, for the purpose of working out the net income of the partnership under subsection
90(1)
of the
Income Tax Assessment Act 1936
, the assessable income of the partnership, for the income year in which the distribution is made, includes an amount equal to the *franking credit on the distribution.
207-40(2)
Where:
(a)
a *franked distribution is made to a trustee of a trust; and
(b)
the distribution *flows indirectly to a beneficiary or the trustee of the trust;
then, for the purpose of working out the net income of the trust under subsection
95(1)
of the
Income Tax Assessment Act 1936
, the assessable income of the trustee, for the income year in which the distribution is made, includes an amount equal to the *franking credit on the distribution.
Note 1: An amount included in the assessable income of a partnership under this provision will also affect the assessable income of a partner in the partnership. This is because of Division 5 of Part III of the
Income Tax Assessment Act 1936
.
Note 2: An amount included in the assessable income of a trustee under this provision will also affect the assessable income of a beneficiary of the trust, or the amount on which the trustee of the trust is assessed and liable to pay tax. This is because of Division 6 of Part III of that Act.
History
S 207-40 inserted by No 48 of 2002.
Adjustment of the amount included in the assessable income of an entity because of a distribution that flows indirectly
207-45(1)
Where:
(a)
an amount is included in the assessable income of an entity under Division 5 or 6 of Part III of the
Income Tax Assessment Act 1936
; and
(b)
the amount is attributable to the *franking credit on a *distribution that *flows indirectly to the entity;
then, despite anything in those Divisions, the amount that is included in the assessable income of the entity is equal to the entity's *share of the franking credit on the distribution.
207-45(2)
Where:
(a)
as trustee of a trust, an entity is liable to be assessed on an amount under Division 6 of Part III of the
Income Tax Assessment Act 1936
; and
(b)
the amount is attributable to the *franking credit on a *distribution that *flows indirectly to the trustee;
then, despite anything in that Division, the amount on which the entity is assessed and liable to pay tax is equal to the entity's *share of the franking credit on the distribution.
History
S 207-45 inserted by No 48 of 2002.
Tax offset where distribution flows indirectly
207-50(1)
If:
(a)
a *franked distribution *flows indirectly to an entity; and
(b)
the entity is one of the following:
(i)
an individual;
(ii)
a *corporate tax entity;
(iii)
a trustee that is liable to be assessed on a share of the *net income of the trust under section 98,
99
or
99A
of the
Income Tax Assessment Act 1936
;
(iv)
a trustee of an eligible entity within the meaning of Part IX of the
Income Tax Assessment Act 1936
(certain superannuation funds, ADFs and PSTs are eligible entities);
the entity is entitled to a *tax offset for the income year in which the distribution is made.
Note: These are the ultimate recipients of the distribution and so the ultimate taxpayers. For this reason, they are given the benefit of having income tax already paid on the profits underlying the distribution acknowledged when they pay income tax.
207-50(2)
The amount of the *tax offset is equal to the entity's *share of the *franking credit on the distribution.
Note: The entity's share of the franking credit, and so the entity's tax offset, may be nil.
History
S 207-50 inserted by No 48 of 2002.
An entity's share of the franking credit on a franked distribution
207-55(1)
Use the following table to work out an entity's
share
of the *franking credit on a *franked distribution that *flows indirectly to the entity if:
(a)
the distribution is made to a *partnership of which the entity is a partner; or
(b)
the distribution is made to the trustee of a trust of which the entity is a beneficiary and a share of the *net income of the trust is included in the entity's assessable income under section 97,
98A
or
100
of the
Income Tax Assessment Act 1936
; or
(c)
the distribution is made to the entity as trustee of a trust and the entity is liable to be assessed under section 98,
99
or
99A
of the
Income Tax Assessment Act 1936
in respect of the net income, or part of the net income, of the trust.
207-55(2)
Use the following table to work out an entity's
share
of the *franking credit on a *franked distribution that *flows indirectly to the entity if:
(a)
the distribution *flows indirectly to a *partnership of which the entity is a *partner; or
(b)
the distribution flows indirectly to the trustee of a trust of which the entity is a beneficiary and a share of the *net income of the trust is included in the entity's assessable income under section 97,
98A
or
100
of the
Income Tax Assessment Act 1936
; or
(c)
the distribution flows indirectly to the entity as trustee of a trust and the entity is liable to be assessed under section 98,
99
or
99A
of the
Income Tax Assessment Act 1936
in respect of the net income, or part of the net income, of the trust.
Before working out the entity's share of the franking credit, first work out the partnership's or trust's share of the franking credit, by applying this section to each entity to which the distribution flows indirectly on its way to the partnership or trust, starting with the entity whose share is worked out under subsection (1) and following the flow of the distribution from that entity to the partnership or trust.
Note: Where reference is made in the tables in subsection (1) and (2) to an amount attributable to a distribution, it is a reference to an amount attributable to the cash amount of the distribution.
History
S 207-55 inserted by No 48 of 2002.
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).
History
S 207-50(3) amended by
No 79 of 2007
, s 3 and Sch 9 item 22, by substituting
"
section 98A or 100
"
for
"
paragraph 98A(1)(a) or (b), or paragraph 100(1)(a) or (b),
"
in para (b)(ii), applicable in relation to income years starting on or after 1 July 2006.
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
.
History
S 207-50(5) amended by No 62 of 2011, s 3 and Sch 2 items 20 and 21, by substituting
"
is therefore $70
"
for
"
is $70
"
and
"
The beneficiary is also allowed a tax offset of $30
"
for
"
The beneficiary is therefore allowed a tax offset of $30
"
in the example at the end, effective 29 June 2011. For application provisions see note under s
115-200
.
History
S 207-50 substituted by No 83 of 2004, s 3 and Sch 10 item 7, applicable to events that occur on or after 1 July 2002, subject to the rules on the application of Part 3-6 of the
Income Tax Assessment Act 1997
set out in the
Income Tax (Transitional Provisions) Act 1997
. For former wording of s 207-50 see note under Subdiv 207-B heading.
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