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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM    View history reference

Division 207 - Effect of receiving a franked distribution    View history reference

Subdivision 207-F - No gross-up or tax offset where the imputation system has been manipulated    View history reference

Operative provisions

SECTION 207-150  Distribution that flows indirectly to an entity  

 View history reference

Whole of share of distribution manipulated

207-150(1)  

If a *franked distribution *flows indirectly to an entity in an income year in one or more of the following circumstances:


(a) the entity is not a qualified person in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the Income Tax Assessment Act 1936;
 View history reference


(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of that Act that no imputation benefit (within the meaning of that section) is to arise in respect of the distribution for the entity;


(c) the Commissioner has made a determination under paragraph 204-30(3)(c) of this Act that no *imputation benefit is to arise in respect of the distribution for the entity;


(d) the distribution is treated as an interest payment for the entity under section 207-160 of this Act;


(e) the distribution is made as part of a *dividend stripping operation;


(ea) the distribution is one to which section 207-157 (which is about distribution washing) applies;
 View history reference

then, for the purposes of this Act:


(f) subsection (2), (3) or (4) (as appropriate) applies to the entity in relation to that income year; and


(g) the entity is not entitled to a *tax offset under this Division because of the distribution; and
 View history reference


(h) if the distribution *flows indirectly through the entity to another entity - subsection 207-35(3) and section 207-45 do not apply to that other entity.

[CCH Note: It is necessary to have regard to the rules in former Division 1A of Part IIIAA of the Income Tax Assessment Act 1936, as in force at 30 June 2002, in determining whether an entity is a qualified person for the purposes of paragraphs 207-145(1)(a) and 207-150(1)(a) of ITAA 1997 in respect of a franked distribution made directly or indirectly to the entity after 30 June 2002: see Taxation Determination TD 2007/11. The rules relating to "qualified persons" in Division 1A of Part IIIAA are reproduced in the note to s 207-145.]

Partner

207-150(2)  

If the *franked distribution *flows indirectly to the entity as a partner in a partnership under subsection 207-50(2), the entity can deduct an amount for that income year that is equal to its *share of the *franking credit on the distribution.

Beneficiary

207-150(3)  

If the *franked distribution *flows indirectly to the entity as a beneficiary of a trust under subsection 207-50(3), the entity can deduct an amount for that income year that is equal to the lesser of:


(a) its share amount in relation to the distribution that is mentioned in that subsection; and


(b) its *share of the *franking credit on the distribution.

Trustee

207-150(4)  

If the *franked distribution *flows indirectly to the entity as the trustee of a trust under subsection 207-50(4), the entity's share amount in relation to the distribution that is mentioned in that subsection is to be reduced by the lesser of:


(a) that share amount; and


(b) its *share of the *franking credit on the distribution.

Part of share of distribution manipulated

207-150(5)  

If:


(a) a *franked distribution *flows indirectly to an entity in an income year; and


(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise in respect of a specified part of the distribution (the specified part) for the entity;

then, subsection (2), (3) or (4) (as appropriate) applies to the entity on the basis that the amount of its *share of the *franking credit on the distribution is worked out as follows:
          Specified part         
Entity's *share
of the *franked distribution
×Entity's *share
of the *franking credit on
the *franked distribution
apart from this section
 

207-150(6)  

In addition, the following apply to an entity covered by subsection (5):


(a) if the distribution would otherwise *flow indirectly through the entity - the entity's *share of the distribution for the purposes of this Act (other than subsection (2), (3) or (4)) is to be reduced by the specified part mentioned in subsection (5);


(b) if the entity would otherwise be entitled to a *tax offset under this Division because of the distribution - the amount of the tax offset is to be worked out as follows:
 Entity's *share of
the *franking credit on the
*franked distribution apart
from this section
-Amount worked out
under subsection (5)
 

 View history reference

Example:

X is a partner in a partnership to which a franked distribution of $140 is made. The franking credit on the distribution ($60) is included in the assessable income of the partnership under section 207-35. X's share of the distribution is $70 and its share of the franking credit on the distribution is $30.

The Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise for X in respect of $42 of the distribution.

Under subsection (5), X will be allowed a deduction of $18.

X is the trustee of a trust and the distribution will flow indirectly through X to beneficiaries of the trust. For the purposes of working out a beneficiary's share of the distribution and its share of the franking credit, X's share of the franked distribution is reduced to $28 under this subsection.

What happens if both subsection 207-95(1) and subsection (1) of this section would apply

207-150(7)  

If, apart from this subsection, both subsection 207-95(1) and subsection (1) of this section would apply to an entity in relation to a *franked distribution, then:


(a) subsection (1) of this section applies to the entity; but


(b) subsection 207-95(1) does not apply to the entity.

What happens if both subsection 207-95(5) and subsection (5) of this section would apply

207-150(8)  

If, apart from this subsection, both subsection 207-95(5) and subsection (5) of this section would apply to an entity in relation to a *franked distribution, then:


(a) apply subsections 207-95(5) and (6) first; and


(b) apply subsections (5) and (6) of this section on the basis that:


(i) the amount of the entity's *share of the *franking credit on the distribution had been reduced under subsection 207-95(5); and

(ii) the amount of the entity's *share of the distribution had been reduced under subsection 207-95(6).


 



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