A T O home
Legal Database
Search   
for 
 
Access the database 
Browse database
Searches  
View last document
Quick access 
View legislation
View a document
Email Cross Reference Material Previous/Next Section Contents Previous/Next Result
Printable version
Printable
version

ATO Interpretative Decision

ATO ID 2004/365 (Withdrawn)

Income Tax
Posting of franking credits in respect of income tax paid by Pooled Development Funds

Attention This ATO ID is withdrawn due to amendments to the law.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: WITHDRAWN

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Do the imputation effects vary between Part IIIAA of the Income Tax Assessment Act 1936 (ITAA 1936) and Part 3-6 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to income tax paid by a Pooled Development Fund (PDF) in respect of unregulated investments?

Decision

No. The imputation effects do not vary between Part IIIAA of the ITAA 1936 and Part 3-6 of the ITAA 1997 in relation to income tax paid by a PDF in respect of unregulated investments.

Facts

The taxpayer is an eligible investment company registered under the Pooled Development Funds Act 1992 as a PDF. The PDF has taxable income of $100 for each of the 1998-99 and 2002-03 income years. For both income years, the taxable income of the PDF only compromises income generated from unregulated investments. The PDF distributes all of its after-tax profits to its sole shareholder in both years so as to bring its franking account to nil.

Reasons for Decision

Old imputation system under Part IIIAA of the ITAA1936

According to the facts, the taxable income of the PDF only comprises income generated from unregulated investments. Accordingly, the PDF will not be able to frank any dividends with venture capital credits.

However, the PDF may still frank a dividend with a class C franking credit if its satisfies subsection 160AQF(1AAA) of the ITAA 1936.

For the 1998-99 income year, the tax rate for PDFs on the unregulated investment component is 25%. Accordingly, the tax on taxable income of the PDF is $25 (100 x 25%).

Pursuant to section 160APMG of the ITAA1936, if a company pays company tax on a particular day, a class C franking credit arises on that day equal to the 'adjusted amount' in relation to the amount of company tax paid. The 'adjusted amount' is calculated in accordance with the formula under the definition of 'adjusted amount' in section 160APA of the ITAA1936. This formula converts tax paid amounts into after tax amounts based on the 'applicable general company tax rate'. In relation to payment of company tax in respect of a year of income, the 'applicable general company tax rate' is defined in section 160APA to mean the general company tax rate for the year of tax to which the year of income relates. The general company tax rate for the 1998-99 income year is 36%. Thus, on payment of the 1999 company tax, the PDF will credit its franking account with a class C franking credit equal to $44.44 ($25 x ((1 - 0.36)/0.36)).

Pursuant to subsection 160AQB(3) of the ITAA 1936, when the PDF distributes the remainder of the after-tax profits of $75 to its shareholder in the 1999-2000 income year and franks that dividend, a class C franking debit will arise equal to the 'class C franked amount'. The 'class C franked amount' is defined in section 160APA of the ITAA 1936 to mean so much of the dividend as has been franked in accordance with subsection 160AQF(1AAA) of the ITAA 1936. Provided the conditions in subsection 160AQF(1AAA) are satisfied, the 'class C franked amount' equals the current dividend x specified percentage.

In this case, the current dividend is $75 (that is, the amount which remains to distribute after payment of company tax on $100). The specified percentage in this case will be 59.26%. The 59.26% is obtained by dividing the required franking amount by the amount of the current dividend (that is, $44.44/$75). Accordingly, the 'class C franked amount' (and hence the class C franking debit) will be $44.44 ($75 x 59.26%).

In terms of the shareholder, pursuant to subsections 160AQT((1AB) and 160AQU(1) of the ITAA 1936, the gross-up and franking rebate each equal $25 ($44.44 x 0.36/(1 - 0.36)).

New imputation system under Part 3-6 of the ITAA 1997

According to the facts, the taxable income of the PDF only comprises income generated from unregulated investments. Accordingly, the PDF will not be able to frank any dividends with venture capital credits.

However, the PDF may still frank a distribution with a franking credit if it satisfies section 202-5 of the ITAA 1997.

For the 2002-03 income year, the tax rate for PDFs on the unregulated investment component is 25%. Accordingly, the tax on taxable income of the PDF is $25 (100 x 25%).

Pursuant to Item 2 of section 205-15 of the ITAA 1997, if a franking entity pays income tax and satisfies the residency requirement for the income year for which the tax is paid, a franking credit equal to the tax paid arises in the franking account on the day the tax is paid. Thus, on payment of the 2003 income tax, the PDF will credit its franking account with a franking credit equal to $25.

Pursuant to Item 1 of section 205-30 of the ITAA 1997, when the PDF distributes the remainder of the after-tax profits of $75 to its shareholder in the 2003-04 income year and franks that distribution, a franking debit will arise equal to the amount of the franking credit on the distribution. According to the facts, the PDF desires to bring its franking account balance to nil after payment of the distribution. Accordingly, the amount of the franking credit on the distribution is $25. The franking percentage is therefore 77.78% ($25/$32.14 x 100), where $32.14 represents the maximum franking credit calculated in accordance with subsection 202-60(2) of the ITAA 1997 utilising a corporate tax rate of 30%.

In terms of the shareholder, pursuant to section 207-20 of the ITAA 1997, the gross-up and franking rebate each equal $25 since this is the amount of the franking credit on the distribution.

In conclusion, as seen from the above analysis, it is clear that both the former and new imputation system yield the same result since they both reduce the PDF's franking account balance to zero while providing the shareholder with the same gross-up and franking rebate amounts.

Amendment History

Date of Amendment Part Comment
23 January 2015 Legislative References Remove reference to section 160ASED of the ITAA 1936
Include reference to section 160APA of the ITAA 1936
Remove reference to section 210-105 of the ITAA 1997
Include reference to section 202-5 of the ITAA 1997
Include reference to subsection 202-60(2) of the ITAA 1997
Include reference to section 205-15 of the ITAA 1997

Date of decision: 22 April 2004

Year of income:Year ended 30 June 1999
 Year ended 30 June 2003

Legislative references:
Income Tax Assessment Act 1936
   section 160APA
   section 160APMG
   subsection 160AQB(3)
   subsection 160AQF(1AAA)
   subsection 160AQT(1AB)
   subsection 160AQU(1)

Income Tax Assessment Act 1997
   section 202-5
   subsection 202-60(2)
   section 205-15
   section 205-30
   section 207-20

Keywords
Imputation credits
Imputation system
Pooled development funds

Siebel/TDMS reference number: 3933837, 1-5QRWP69; 1-CR5H4WF

Business line: Private Groups and High Wealth Individuals

Date of publication: 30 April 2004

ISSN: 1445-2782

ATO ID 2004/365 (Withdrawn) history   Top  
   Date   Version 
   22 April 2004   Original statement   
   23 January 2015   Updated statement   
 You are here ®   7 August 2018   Withdrawn   


 


Top of page
More information on page