House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 6 - Imputation for life insurance companies

Outline of chapter

6.1 Schedule 7 to this bill amends Part 3-6 of the ITAA 1997 to include imputation rules for life insurance companies. The rules generally replicate the former imputation rules that applied to life insurance companies in Part IIIAA of the ITAA 1936.

6.2 Broadly, the provisions are concerned with setting out the circumstances when franking credits and debits arise in franking accounts of life insurance companies from:

•

the payment and refund of tax; and

•

the receipt of franked dividends.

6.3 The provisions also include some special rules to handle the transition from the old imputation system to the new SIS.

Context of amendments

6.4 These rules have been developed to complement the core SIS rules introduced in the New Business Tax System (Imputation) Act 2002 which applied from 1 July 2002.

6.5 These amendments reflect the rules and terminology of the SIS, and use clearer and more accessible drafting techniques developed as part of the tax law improvement project. They also condense the ITAA 1936 provisions whilst retaining the key features of the imputation system for life insurance companies. While this bill contains the core imputation rules for life insurance companies, further rules dealing with venture capital franking and franking deficit tax offset entitlements will be introduced as soon as practicable.

Summary of new law

6.6 Schedule 7 amends Part 3-6 of the ITAA 1997 to deal with the entries made by life insurance companies to their franking accounts. As a general principle, the new provisions replicate the provisions of the former imputation system relating to life insurance companies. However, the main departures from the former rules include:

•

the removal of the over-estimation penalty that applied where life insurance companies over-estimated the total number of franking credits they were entitled to receive during the income year;

•

the removal of the holding period requirement in respect of franking credits arising from the receipt of franked dividends; and

•

clarification of the franking credits or debits that arise from an amended assessment that alters the proportion of income tax attributable to shareholders.

[Schedule 7, item 4, section 219-55]

6.7 In addition, this bill:

•

clarifies the residency requirement in subparagraph 205-25(1)(a)(i) in respect of events that occur before the end of the income year [Schedule 7, item 3, subsection 205-25(1)];

•

provides some transitional provisions ensuring the correct application of the rules in the income year ending, or straddling, 1 July 2002 [Schedule 7, item 9];

•

provides a simpler mechanism for franking credits and debits when a PAYG instalment variation credit is claimed and applied by a life insurance company;

•

clarifies the method of determining the amount of income tax that is considered to be attributable to shareholders [Schedule 7, item 4, section 219-50]; and

•

clarifies the timing of a franking credit in circumstances where a company receives a franked distribution indirectly through a partnership or trust [Schedule 7, item 2, section 205-15; item 4, subsection 219-15(3)].

6.8 The provisions apply from 1 July 2002, consistent with existing provisions comprising the SIS. Although the rules are retrospective, they do not adversely effect life insurance companies or their shareholders. If the rules did not apply from this date, life insurance companies would not have an imputation regime applying to their individual circumstances. Furthermore, the rules have been developed in consultation with the life insurance industry. Industry support the amendments, including the application date.

Conversion of old provisions into equivalent new provisions

6.9 One of the main features of the new rules is the simplification benefit gained from collapsing 14 different franking credit and debit provisions that existed under the old rules, into a single set of rules provided in 2 different tables. The conversion of the old provisions to the equivalent new provision is set out in Table 6.1.

Detailed explanation of new law

Background

6.10 Australia's dividend imputation system is designed to prevent the double taxation of company profits. Without such a system, company profits could potentially be taxed at the company level and taxed again when those profits are distributed to individual shareholders in the form of dividends.

6.11 The imputation system prevents the double taxation of company profits by allowing the company to impute to its shareholders (as an imputation credit attached to a franked dividend) the tax that it has paid on the income that it distributes to them. In the case where a company makes a distribution to another company, the imputation system provides a mechanism to allow the receiving company to record the amount of tax that has been paid by the dividend paying company so that it can, in turn, impute that tax to its own individual shareholders. This mechanism is referred to as a franking account.

6.12 Life insurance companies differ from ordinary companies in that, under the imputation system, some components of their income is treated as if it is the final individual taxing point, while other income is treated as though it is available for distribution to the ultimate individual shareholders of the company.

6.13 Because of this unique treatment, franking credits and debits only arise in the franking account of life insurance companies to the extent that the payment or refund of tax or the receipt of franked dividend income is attributable to the shareholders of the company.

6.14 However, life insurance companies are not able to determine the extent to which a payment or refund of tax or the receipt of franked dividend income is attributable to shareholders until assessment, which occurs after the end of the income year.

6.15 To allow life insurance companies access to franking credits before assessment, life insurance companies can estimate the extent to which certain transactions are reasonably attributable to the shareholders of the company. Upon assessment, the estimated franking credits and debits are reversed and reinstated in accordance with the actual extent to which tax is attributable to shareholders.

6.16 This general scheme, which is inserted as Division 219 of the ITAA 1997, is explained in further detail below.

Initial franking credits arising from PAYG instalments

6.17 Franking credits arise from the payment of PAYG instalments as set out in item 1 in the table contained in subsection 219-15(2). This provision is the equivalent of section 160APVJ of the ITAA 1936. [Schedule 7, item 4, subsection 219-15(2), item 1 in the table]

6.18 In order for a franking credit to arise under item 1, the following 4 conditions must be satisfied:

•

the company pays a PAYG instalment;

•

the company satisfies the residency requirement;

•

the payment is made before the company's assessment day; and

•

the company is a franking entity.

[Schedule 7, item 4, subsection 219-15(2), item 1 in the table]

What is a PAYG instalment?

6.19 Section 205-20 defines when a company pays a PAYG instalment. Importantly, a PAYG instalment will only be taken to have been made if a liability to pay a PAYG instalment has arisen. The amount of that liability is the full PAYG instalment reduced by the amount of any PAYG instalment variation credit applied by the company. These rules have been simplified, with the application of an instalment variation credit no longer considered to be a payment of a PAYG instalment. The application of this rule is shown in Example 6.2.

What is the residency requirement?

6.20 The residency test is set out in section 205-25. In summary, this section provides that a life insurance company will satisfy the residency requirement for an income year if the company:

•

is an Australian resident for more than a half of the immediately preceding 12 months, where the payment occurs within the relevant income year;

•

is an Australian resident at all times during the income year, where the payment occurs after the relevant income year; or

•

is an Australian resident for at least 6 months of the year.

[Schedule 7, item 3, subsection 205-25(1)]

When is the company's assessment day?

6.21 Section 219-45 sets out when a company's assessment day will be taken to occur. This will be the earlier of:

•

the day on which the company furnishes its income tax return for the relevant income year; or

•

the day on which the Commissioner makes such an assessment (including an assessment that the company has no income tax liability).

[Schedule 7, item 4, section 219-45]

What is a franking entity?

6.22 The test for what is a franking entity is contained in the core SIS rules that apply to ordinary companies. These rules explain that life insurance companies that are not mutual life insurance companies will be franking entities.

What is the amount of the franking credit?

6.23 If the 4 conditions in paragraph 6.18 are satisfied, a franking credit will arise in the franking account of the company. To work out the amount of the franking credit the life insurance company must:

•

estimate that part of the payment that is attributable to the shareholders' share of the income tax liability of the company for the income year; and

•

determine that part of the payment that is attributable to the period during which the company was a franking entity.

[Schedule 7, item 4, subsection 219-15(2), item 1 in the table]

6.24 The method statement contained in section 219-50 must be used by life insurance companies to estimate that part of the PAYG payment that is attributable to the shareholders' share of the income tax liability. The method statement sets out in 3 steps how this must be calculated.

•

The first step requires companies to make a reasonable estimate of the amount of income tax that will be attributable to shareholders at assessment. This is referred to as the 'shareholders' share'.

•

The second step requires life insurance companies to divide the shareholders' share by the total income tax liability, the resulting amount is referred to as the 'shareholders' ratio'.

•

The third and final step is to apply the shareholders' ratio to the amount of the PAYG instalment.

[Schedule 7, item 4, section 219-50]

6.25 The result of this calculation provides the amount of the franking credit that arises. A comprehensive example illustrating this process is set out in Example 6.1. When using the method statement, the life insurance company must consider their accounting records. [Schedule 7, item 4, subsection 219-50(4)]

When does the franking credit arise?

6.26 Item 1 in the table in subsection 219-15(2) explains that a franking credit arises on the day on which the payment is made.

Reversing franking debits arising upon assessment

6.27 Upon assessment, when the actual component of tax attributable to shareholders becomes known, the initial franking credits that arose under item 1 in the table in subsection 219-15(2) are reversed with a franking debit under item 1 in the table in subsection 219-30(2). This provision is the equivalent of section 160AQCNCB of the ITAA 1936. [Schedule 7, item 4, subsection 219-30(2), item 1 in the table]

6.28 In order for a franking debit to arise under item 1, a franking credit must have first arisen under item 1 in the table in subsection 219-15(2) (i.e. for the payment of a PAYG instalment).

6.29 If so, a franking debit of the amount of the credit that arose under item 1 in the table in section 219-15 will arise in the franking account of the life insurance company on their assessment day. [Schedule 7, item 4, subsection 219-30(2), item 1 in the table]

Reinstating franking credits for PAYG instalments upon assessment

6.30 After the initial franking credits arising from PAYG instalments have been reversed in accordance with item 1 in the table in subsection 219-30(2), it is necessary to reinstate franking credits reflecting the assessed component of income tax liability attributable to shareholders. These franking credits are provided for in item 2 in the table in subsection 219-15(2), replicating section 160APVK of the ITAA 1936. [Schedule 7, item 4, subsection 219-15(2), item 2 in the table]

6.31 In order for these franking credits to arise, the equivalent conditions contained in item 1 (pays a PAYG instalment, the residency requirements, and franking entities) must also be satisfied. Further, the method statement contained in section 219-50 must be applied to calculate the amount of franking credit that arises. The resulting franking credit arises in the franking account of the life insurance company on the company's assessment day. [Schedule 7, item 4, subsection 219-15(2), item 2 in the table]

Franking credits for PAYG instalments after assessment

6.32 In cases where PAYG instalments are made after the company's assessment day (i.e. late payments), franking credits will arise under item 3 in the table in subsection 219-15(2), the equivalent of section 160APVL of the ITAA 1936. Unlike credits under item 1 in the table in subsection 219-15(2), these credits are not reversed because payment occurs on or after assessment when the tax attributable to shareholders will be known. [Schedule 7, item 4, subsection 219-15(2), item 3 in the table]

6.33 In order for the franking credit to arise, the equivalent conditions in item 1 in the table in subsection 219-15(2) must also be satisfied and the method statement contained in section 219-50 must be applied. The franking credit will arise on the day on which the company pays the PAYG instalment. [Schedule 7, item 4, subsection 219-15(2), item 3 in the table]

Franking credits arising for tax paid on or after assessment

6.34 If a life insurance company is required to pay any form of income tax after their assessment day, a franking credit will arise under item 4 in the table in subsection 219-15(2), the equivalent of section 160APVM of the ITAA 1936. The payment of income tax would include an additional payment related to an income tax assessment, payments made as a result of an amended assessment, or the payment of excess foreign tax credits. [Schedule 7, item 4, subsection 219-15(2), item 4 in the table]

6.35 The franking credit that arises on the day the payment of income tax is made is subject to the equivalent conditions relating to residency and franking entities in item 1 in the table in subsection 219-15(2). When calculating the franking credit that will be generated by the payment, the life insurance company must apply the method statement in section 219-50. [Schedule 7, item 4, subsection 219-15(2), item 4 in the table]

6.36 In the case of an amended assessment that alters the proportion of income tax attributable to shareholders (i.e. amends the shareholders' ratio), and where the franking account would have a different balance if the new ratio had been used, then a franking credit or debit (as appropriate), will arise in the franking account of the company on the date of the amended assessment. [Schedule 7, item 4, section 219-55]

Franking credits arising for the receipt of franked dividends (both direct and indirect)

6.37 If a life insurance company receives a franked distribution either directly or indirectly through a partnership or trust, a franking credit will arise in the company's franking account under item 5 or 6 in the table in subsection 219-15(2), the equivalent of subsections 160APP(5) and 160APQ(3) of the ITAA 1936. [Schedule 7, item 4, subsection 219-15(2), items 5 and 6 in the table]

6.38 In order for franking credits to arise under these items, the following conditions must be met:

•

the company receives a distribution;

•

the company is entitled to a tax offset under Division 207; and

•

the tax offset the company is entitled to is not subject to the refundable tax offset rules in Division 67.

[Schedule 7, item 4, subsection 219-15(2), items 5 and 6 in the table]

6.39 In addition, the equivalent conditions in item 1 in the table in subsection 219-15(2) (the residency requirement and franking entity requirement) must be satisfied.

When is a company entitled to a tax offset under Division 207?

6.40 The distribution the life insurance company receives must satisfy all the requirements under Division 207. Division 207 generally provides that if a corporate tax entity makes a franked distribution to one of its members, then an amount equal to the franking credit on the distribution is included in the member's assessable income and the member is entitled to a tax offset of the same amount. This Division contains a residency requirement in section 207-75 that the member receiving the distribution must satisfy to obtain the tax offset.

When is the tax offset not subject to the refundable tax offset rules in Division 67?

6.41 Division 67 sets out circumstances in which a life insurance company can obtain a refundable tax offset. Broadly, the rules apply where a distribution is made to a membership interest that is held on behalf of policyholders.

What is the amount of the franking credit?

6.42 The franking credit that arises will be the amount of the tax offset. [Schedule 7, item 4, subsection 219-15(2), items 5 and 6 in the table]

When does the credit arise?

6.43 Where a life insurance company receives a distribution directly, the franking credit will arise on the day on which the distribution is made.

6.44 In the case of a franked distribution received indirectly through a partnership or trust, subsection 219-15(3) establishes that the franking credit will arise at the end of the income year in which the franked distribution flows to the life insurance company, that is an income year of the last partnership or trust interposed between:

•

the life insurance company; and

•

the corporate tax entity that made the distribution.

[Schedule 7, item 4, subsection 219-15(3)]

6.45 To clarify the operation of this rule for ordinary companies, an equivalent provision for companies other than life companies has been inserted into section 205-15 of the ITAA 1997. [Schedule 7, item 2, section 205-15]

Franking credits arising for the payment of franking deficit tax

6.46 Consistent with the rules that apply to ordinary companies, life insurance companies receive a franking credit for a liability to pay franking deficit tax under item 7 in the table in subsection 219-15(2). The franking credit is equal to the amount of the liability and will arise in the franking account immediately after the liability is incurred. [Schedule 7, item 4, subsection 219-15(2), item 7 in the table]

Franking debits for refunds of tax occurring on or after assessment

6.47 When a life insurance company receives a refund of income tax, franking debits will arise under item 2 in the table in subsection 219-30(2), the equivalent of section 160AQCNCD of the ITAA 1936. [Schedule 7, item 4, subsection 219-30(2), item 2 in the table]

6.48 In order for franking debits to arise under this item the company must receive a refund of income tax and the equivalent conditions contained in item 1 in the table in subsection 219-15(2) must be satisfied. The method statement contained in section 219-50 must be applied in calculating the amount of the franking debit. The franking debit arises in the franking account on the day the refund is received. [Schedule 7, item 4, subsection 219-30(2), item 2 in the table]

Comprehensive examples

Example 6.1: General application of rules

Instalment 1

X Co is a life insurance company whose instalment income for the first quarter is $1,000,000, with a PAYG instalment rate of 10%. As such, X Co pays a PAYG instalment of $100,000 (their instalment liability for the first instalment period). Using the method statement in section 219-50 it estimates that the amount of this payment that will be attributable to the shareholders' share of income tax liability will be $80,000. This is a result of the following calculation.

•

Under step 1 of the method statement, X Co estimates, after considering its accounting records, that for this income year, $384,000 will be attributable to shareholders (the shareholders' share).

•

Under step 2 of the method statement, X Co estimates that its total income tax liability for this income year will be $480,000. Therefore, the shareholders' ratio will be 0.8 ($384,000 ? $480,000).

•

Step 3 of the method statement then requires X Co to multiply the shareholders' ratio by the amount of the payment. As such, the amount of the first PAYG instalment for this year that is attributable to shareholders, will be $80,000.

Therefore the payment of $100,000 will generate $80,000 in franking credits.

The balance of the company's franking account is $80,000.

Instalment 2

X Co's PAYG instalment liability for the second quarter of the income year is $110,000, and the company remains satisfied that the shareholders' ratio should remain unchanged, at 0.8. Under step 3 of the method statement, X Co will calculate a franking credit of $88,000.

The balance of the franking account is $168,000.

Instalment 3

X Co's PAYG instalment liability for the third quarter of the income year is $112,000, with the shareholders' ratio unchanged at 0.8. Under step 3 of the method statement, X Co will calculate a franking credit of $89,600.

The balance of the franking account is $257,600.

Instalment 4

X Co's PAYG instalment liability for the final quarter of the income year is $148,000, with the shareholders' ratio unchanged at 0.8. Under step 3 of the method statement X Co will calculate a franking credit of $118,400.

The balance of the franking account is $376,000.

Assessment

On assessment, the company determines that its income tax liability for the income year is $500,000 and of this amount $450,000 is attributable to shareholders.

On assessment, the credits that had arisen in relation to payment of PAYG instalments will be reversed, and reinstated reflecting the shareholders' ratio determined on assessment.

A franking debit of $376,000 will arise under item 1 in the table in subsection 219-30(2) reversing the franking credits that arose under item 1 in the table in subsection 219-15(2).

In order to reinstate the franking credits in accordance with the shareholders' ratio as determined on assessment, X Co applies the method statement.

•

Step 1: $450,000 of the total income tax liability is attributable to shareholders.

•

Step 2: Given the total income tax liability of $500,000, the shareholders' ratio is 0.9. This differs from the estimated shareholders' ratio of 0.8.

•

Step 3: This ratio is applied to the total PAYG instalment payments and provides a franking credit under item 2 in the table in subsection 219-15(2) of $423,000.

As the company will also be required to pay a wash-up payment of $30,000 on assessment, a further franking credit of $27,000 arises at the time of assessment under item 4 in the table in subsection 219-15(2).

Example 6.2: Variation of a PAYG instalment rate

X Co is a life insurance company whose instalment income for the first quarter is $1,000,000, with a PAYG instalment rate of 15%. As such, X Co pays a PAYG instalment of $150,000 (their instalment liability for the first instalment period).

Using the method statement in section 219-50, X Co estimates that the shareholders' ratio is 0.8 and, as such, a franking credit will arise of $120,000 under item 1 in the table in subsection 219-15(2).

Following the first instalment, X Co varies its instalment rate to 10% and consequently applies for a PAYG instalment variation credit of $50,000. No franking debit will arise as a result of the application of the PAYG instalment variation credit.

This PAYG instalment variation credit is then used to reduce the second PAYG instalment, with an additional payment made of $50,000 (as the company remains satisfied that the shareholders' ratio should remain unchanged at 0.8, then $40,000 of this amount is attributable to shareholders). A franking credit of $40,000 will then arise under item 1 in the table in subsection 219-15(2). No franking credit arises as a result of the application of the PAYG instalment variation credit.

The third and fourth PAYG instalments are payments of $100,000 in each quarter (with the shareholders' ratio unchanged at 0.8, $80,000 is attributable to shareholders). A franking credit of $80,000 will then arise in each quarter under item 1 in the table in subsection 219-15(2).

On assessment a franking debit will arise under item 1 in the table in subsection 219-30(2) of $320,000 (the total of franking credits arisen under item 1 in the table in subsection 219-15(2)). In accordance with the method statement in section 219-50, the shareholders' ratio determined on assessment was 0.8. A credit of $320,000 will therefore arise under item 2 in the table in subsection 219-15(2) of the ITAA 1997.

The balance of the franking account with respect to this income year is $320,000.

Example 6.3: Amendment of the proportion attributable to shareholders

X Co, a life insurance company, paid 4 PAYG instalments of $100,000 with respect to an income year.

Applying the method statement in section 219-50, X Co estimates that their shareholders' ratio is 0.85. A franking credit of $85,000 would therefore have arisen with respect to each quarter.

One year later, an amendment to X Co's assessment reflects that only 0.8 of the total income tax liability was attributable to shareholders.

Therefore $80,000 of franking credits should have arisen for each PAYG instalment (totalling $320,000). A franking debit of $20,000 will therefore arise under section 219-55 on the day the Commissioner made the amended assessment.

	Franking credit	Franking debit
PAYG instalment 1 paid: $100,000.	$85,000
PAYG instalment 2 paid: $100,000.	$85,000
PAYG instalment 3 paid: $100,000.	$85,000
PAYG instalment 4 paid: $100,000.	$85,000
Balance in franking account on assessment.	$340,000
Debit on amended assessment.		$20,000
Balance on amended assessment.	$320,000

Application

6.49 These rules apply from the commencement of the SIS regime (i.e. 1 July 2002).

Transitional provisions

6.50 In order to allow the new law to interface with the previous rules for life insurance companies, 2 transitional provisions have been included specifically for life insurance companies.

6.51 The first transitional rule is needed to take into account that the SIS rules moved to a 'tax paid' franking account from 1 July 2002 and the reversal of franking credit entries that occurred prior to this date will not be expressed in the equivalent currency.

6.52 The first rule applies to all franking credits arising before 1 July 2002 in respect of an income year under section 160APVJ of the ITAA 1936 in relation to a PAYG instalment, where the assessment day for that income year occurs on or after 1 July 2002.

•

These credits are reversed on the assessment day, by a franking debit equal to the franking credits (on a tax paid basis).

•

The provision also applies item 2 in the table in subsection 219-15(2) to reinstate the credits, as if the PAYG instalments had occurred after 1 July 2002.

[Schedule 7, item 9, section 219-40]

6.53 For example, if a company generates $210,000 in franking credits under section 160APVJ before 1 July 2002, those franking credits will be reversed on assessment with an equivalent franking debit of $90,000.

6.54 The second transitional rule reverses, on a tax paid basis, a franking debit that has arisen before 1 July 2002 under section 160AQCNCE of the ITAA 1936 in relation to a PAYG instalment variation credit, where the assessment day for that income year occurs on or after 1 July 2002.

•

This transition rule is required as section 160APVN of the ITAA 1936 has not been replicated as a result of simplifying the law. That provision reversed a franking debit that had arisen under section 160AQCNCE on assessment.

•

The franking credit will arise on 1 July 2002.

[Schedule 7, item 9, section 219-45]

Example 6.4: Transitional provisions regarding PAYG instalment variation credits

Note: for ease of explanation this example assumes that franking accounts were maintained on a tax-paid prior to 1 July 2002.

X Co is a life insurance company whose income year ends on 30 June. In respect of its 2002 income year, it has paid 3 PAYG instalments prior to 1 July 2002, and one after 1 July 2002. X Co's instalment income for each quarter was $1,000,000 and the initial PAYG instalment rate was 11%.

On the payment of the first instalment of $110,000, X Co estimated that 80% of the instalment was attributable to shareholders funds income. As such, a franking credit of $88,000 arose in X Co's franking account under section 160APVJ of the ITAA 1936.

Following the first instalment, X Co varied its instalment rate to 10% and claimed a PAYG instalment variation credit of $10,000. As X Co's estimate that 80% was attributable to shareholders funds income remained unchanged, a franking debit of $8,000 arose under section 160AQCNCE of the ITAA 1936.

This PAYG instalment variation credit was then used to reduce the second PAYG instalment, with an additional payment made of $90,000. Again, 80% of the payment was estimated to be attributable to shareholders funds income, and a franking credit of $80,000 arose under section 160APVJ of the ITAA 1936, in relation to both the use of the PAYG instalment variation credit and the additional payment.

The third PAYG instalment was a payment of $100,000, with 80% estimated to be attributable to shareholders funds income. A franking credit of $80,000 arose under section 160APVJ of the ITAA 1936.

On 1 July 2002, a credit arises under section 219-45 of the IT(TP) Act 1997. This franking credit of $8,000 is equal, on a tax-paid basis, to the debit that previously arose under section 160AQCNCE of the ITAA 1936.

As the fourth PAYG instalment was paid after 1 July 2002, a credit of $80,000 arises under item 3 in the table in subsection 219-15(2) of the ITAA 1997.

On assessment day:

a debit will arise of $248,000, under section 219-40 of the IT(TP) Act 1997, reversing the credits that have previously arisen under section 160APVJ of the ITAA 1936 with respect to PAYG instalments;

a further debit of $80,000 will arise under item 1 in the table in subsection 219-30(2), reversing the credit that has previously arisen under item 3 in the table in subsection 219-15(2) with respect to the fourth PAYG instalment; and

a credit of $320,000 will arise under item 2 in the table in subsection 219-15(2) of the ITAA 1997. This credit is with respect to the PAYG instalments paid before 1 July 2002 (through the operation of subsection 219-40(3) of the IT(TP) Act 1997), and with respect to the PAYG instalment paid after 1 July 2002.

The following entries arose in the franking account of X Co:

	Franking credit	Franking debit
Instalment 1. Credit arises under section 160APVJ of the ITAA 1936.	$88,000
PAYG instalment variation credit of $10,000 issued. Debit arises under section 160AQCNCE of the ITAA 1936.		$8,000
Instalment 2. Credit arises under section 160APVJ of the ITAA 1936.	$80,000
Instalment 3. Credit arises under section 160APVJ of the ITAA 1936.	$80,000
1 July 2002 - credit arises under section 219-45 of the IT(TP) Act 1997	$8,000
Instalment 4. Credit arises under item 3 in the table in subsection 219-15(2) of the ITAA 1997.	$80,000
Assessment day - debit arises under section 219-40 of the IT(TP) Act 1997		$248,000
Assessment day - debit arises under item 1 in the table in subsection 219-30(2) of the ITAA 1997.		$80,000
Assessment day - credit arises under item 2 in the table in subsection 219-15(2) of the ITAA 1997.	$320,000
Balance in franking account	$320,000