Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon. J. Kerin, M.P.)Chapter 28 Registered Organisations
[Clause: 47, 52, 53, 58, 86, 93]
Overview
Denies registered organisations the right to maintain franking accounts.
Summary of proposed amendments
28.1. The Bill will give effect to the measure announced in the 1991-92 Budget to:
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- deny registered organisations the right to maintain a franking account from 3.00 pm standard time in the Australian Capital Territory on 20 August 1991; and
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- cancel the franking surplus of these organisations at that time.
Background to the legislation
28.2. Under the existing law, all companies other than mutual life assurance companies that are sufficiently resident in a year of income derive franking credits on the assessment and payment of company tax and on the receipt of franked dividends. Companies receive franking credits so that they can pay franked dividends to shareholders who are then entitled to a franking rebate in their assessment.
28.3. Companies use their franking credits to pay franked dividends. The extent to which a company can pay franked dividends to its shareholders is determined by the amount of the surplus in its franking account on the day the dividend is paid. The surplus on a particular day is the amount by which franking credits exceed franking debits (subsection 160APJ(1)).
28.4. An organisation is a registered organisation if it is a trade union, a friendly society or an employee association for the purposes of the Industrial Relations Act 1988 and;
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- the income from its insurance and superannuation business is assessable under Division 8A of Part IIIAA; and
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- its other income is exempt from income tax.
28.5. Registered organisations are similar to mutual life assurance companies and government insurance offices in that they do not have shareholders and are not able to use their franking credits to pay franked dividends. Mutual life assurance companies and government insurance offices are specifically excluded from receiving franking credits and incurring franking debits (sections 160APKA and 160APWA).
28.6. The effect of the proposed amendments is that registered organisations will be treated the same for imputation purposes as other companies that do not have shareholders (ie, mutual life assurance companies and government insurance offices).
Explanation of the proposed amendments
28.7. A registered organisation will not receive a franking credit under any provision in Subdivision B of Division 2 of Part IIIAA of the Principal Act after 3pm standard time in the Australian Capital Territory on 20 August 1991. [Clause 47 - new section 160APKB] Similarly, no franking debits will arise for registered organisations under any provision of Subdivision C after that time. [Clause 58 - new section 160APWB]
28.8. Registered organisations that are companies do not derive franking credits when they receive franked dividends. This is the case whether the dividends are received directly or indirectly as a beneficiary or partner in a trust or partnership. The provisions that prevented franking credits arising when a registered organisation received a franked dividend directly (subsection 160APP(4)) or indirectly through a trust or partnership (subsection 160APQ(2)) are no longer necessary and will be repealed. [Clauses 52 and 53]
28.9. The surplus in the franking account of a registered organisation at 3pm standard time in the Australian Capital Territory on 20 August 1991, will be cancelled by a franking debit, equal to the amount of the surplus, arising at the time. [Clause 93]
Commencement date
28.10. New sections 160APKB and 160APWB will commence by 3pm standard time in the Australian Capital Territory on 20 August 1991, the time of the 1991-92 Budget. The repeal of subsections 160APP(4) and 160APQ(2) will apply to franking credits arising after that time. [Subclauses 2(5) and 86(2)]
Clauses involved in the proposed amendments
Clause 47 : inserts new section 160APKB.
Clause 52 : amends section 160APP to omit subsection (4).
Clause 53 : amends section 160APQ to omit subsection (2).
Clause 58 : inserts new section 160APWB.
Subclause 86(2) : contains the application provision for the repeal of subsections 160APP(4) and 160APQ(2).
Clause 93 : is a transitional provision that will cancel the franking surplus of registered organisations at 3pm on 20 August 1991.