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

INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

Division 36 - Tax losses of earlier income years  

Subdivision 36-C - Excess franking offsets    View history reference

Operative provision

SECTION 36-55  Converting excess franking offsets into tax loss  

 View history reference

Excess franking offsets

36-55(1)  

 View history reference
An entity that is a *corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if:


(a) the total amount of *tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210-H (except those that are subject to the refundable tax offset rules because of section 67-25);

exceeds:


(b) the amount of income tax that the entity would have to pay on its taxable income for that year if:

(i) it did not have those tax offsets; and

(ii) it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and

(iii) it did not have any tax offset under section 205-70;
but had all its other tax offsets.
 View history reference

The excess is the amount of excess franking offsets.

Note:

Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules.

Example:

For the 2017-18 income year, Company E (which is not a base rate entity) has:

· assessable income of $200 (franked distribution of $140 and franking credit of $60); and
· $100 of deductions that are allowable.

The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules.

Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30:

Graphic


This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year.

How to work out the amount of the tax loss

36-55(2)  

 View history reference
For the purposes of this Act, if:


(a) an entity has an amount of *excess franking offsets for an income year; and


(b) the result of applying the following method statement is a positive amount;

then:


(c) the entity is taken to have a *tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36-10, 165-70, 175-35 or 701-30); and


(d) that year is taken to be a *loss year for the entity if the entity would not otherwise have a tax loss for that year.

Method statement

Step 1. 

Work out the amount (if any) that would have been the entity's *tax loss for that year under section 36-10, 165-70, 175-35 or 701-30 if the entity's *net exempt income for that year (if any) were disregarded.

Note:

See section 36-20 for the calculation of net exempt income.


Step 2. 

Divide the amount of *excess franking offsets by the entity's *corporate tax rate for imputation purposes for that year.


Step 3. 

Add the results of steps 1 and 2.


Step 4. 

Reduce the result of step 3 by the entity's *net exempt income for that year (if any).

The result of this step is taken to be the entity's *tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year.

Example:

Assume that company E did not derive any exempt income for the 2017-2018 income year and that it would not otherwise have any tax loss for that year under section 36-10, 165-70, 175-35 or 701-30.

Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36-15 or 36-17.


 



This information is provided by CCH Australia Limited. View the disclaimer and notice of copyright.
Top of page
More information on page