Income Tax Assessment Act 1997
View history note
Hide history notePt 3-6 inserted by No 48 of 2002.
Div 207 inserted by No 48 of 2002.
Subdiv 207-B substituted by No 83 of 2004, s 3 and Sch 10 item 7, applicable to events that occur on or after 1 July 2002, subject to the rules on the application of Part 3-6 of the Income Tax Assessment Act 1997 set out in the Income Tax (Transitional Provisions) Act 1997 . Subdiv 207-B formerly read:
Subdivision 207-B - Effect of receiving a franked distribution through certain partnerships and trusts
What this Subdivision is about
207-25
A franked distribution to certain partnerships and trusts is treated as flowing indirectly to members of the partnership or trust.Each member's share of the franking credit on the distribution is included in that member's assessable income.
Each member is then given a tax offset equal to that share of the franking credit, provided the member is not itself a partnership or trust through which the distribution flows indirectly.
Where the trustee, rather than a member, is the taxpayer on a share of the distribution, it is the trustee in that capacity who is given the tax offset under this Subdivision.
Applying this SubdivisionHistoryS 207-25 inserted by No 48 of 2002.
207-30
This Subdivision applies subject to:
(a) Subdivision 207-E; and
(b) Subdivision 207-F.Note 1: Subdivision 207-D also contains adjustments to deal with cases where a distribution flows indirectly to an entity that is not a resident.
Note 2: Subdivision 207-E sets out cases in which the rules in this Subdivision will not apply because the distribution is exempt income or non-assessable non-exempt income and so would not be taxed in any case. It also replaces the rules in this Subdivision where the distribution flows indirectly to exempt institutions that are eligible for a refund and, in some cases, to eligible entities within the meaning of Part IX of the Income Tax Assessment Act 1936 and to life insurance companies.
Note 3: Subdivision 207-F sets out cases in which the rules in this Subdivision will not apply because the imputation system has been manipulated in a way that is not permitted under income tax law, for example by streaming distributions or dividend stripping.
When a franked distribution flows indirectly to an entityHistoryS 207-30 amended by No 66 of 2003 and inserted by No 48 of 2002.
207-35(1)
This section sets out the only circumstances in which a *franked distribution is taken to flow indirectly to an entity in an income year.Partners
207-35(2)
The distribution flows indirectly to the entity in the income year if:
(a) the entity is a partner in a *partnership; and
(b) either:
(i) a share of the *net income of the partnership is included in the entity's assessable income for the income year under subsection 92(1) of the Income Tax Assessment Act 1936 ; or
(ii) a share of the *partnership loss of the partnership is allowable as a deduction for the income year to the partner under subsection 92(2) of that Act; and
(c) the whole or a part of that share of the net income or partnership loss of the partnership is attributable to:
(i) an amount included in the assessable income of the partnership because the distribution is made to the partnership; or
(ii) an amount included in the assessable income of the partnership because of the distribution and in circumstances where the distribution flows indirectly to the partnership because of one or more previous applications of this section.Beneficiaries of trusts
207-35(3)
The distribution flows indirectly to the entity in the income year if:
(a) the entity is a beneficiary of a trust; and
(b) a share of the *net income of the trust is included in the entity's assessable income for the income year under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; and
(c) the whole or a part of that share of the net income of the trust is attributable to:
(i) an amount included in the assessable income of the trust because the distribution is made to the trustee of the trust; or
(ii) an amount included in the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section; or
(iii) an amount allowed as a deduction from the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section.Trustees liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936
207-35(4)
The distribution flows indirectly to the entity in an income year if:
(a) the entity is a trustee of a trust; and
(b) the entity is:
(i) liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the *net income of the trust for the income year; or
(ii) liable to be assessed under section 99 or 99A of the Income Tax Assessment Act 1936 in respect of the net income, or a part of the net income, of the trust for the income year; and
(c) the whole or a part of the amount on which the entity is liable to be assessed under that section is attributable to:
(i) an amount included in the assessable income of the trust because the distribution is made to the trustee of the trust; or
(ii) an amount included in the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section; or
(iii) an amount allowed as a deduction from the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section.HistoryS 207-35 inserted by No 48 of 2002.
Effect on assessable income where distribution flows indirectly
207-40(1)
Where:
(a) a *franked distribution is made to a *partnership; and
(b) the distribution *flows indirectly to a partner in the partnership;then, for the purpose of working out the net income of the partnership under subsection 90(1) of the Income Tax Assessment Act 1936 , the assessable income of the partnership, for the income year in which the distribution is made, includes an amount equal to the *franking credit on the distribution.
207-40(2)
Where:
(a) a *franked distribution is made to a trustee of a trust; and
(b) the distribution *flows indirectly to a beneficiary or the trustee of the trust;then, for the purpose of working out the net income of the trust under subsection 95(1) of the Income Tax Assessment Act 1936 , the assessable income of the trustee, for the income year in which the distribution is made, includes an amount equal to the *franking credit on the distribution.
Note 1: An amount included in the assessable income of a partnership under this provision will also affect the assessable income of a partner in the partnership. This is because of Division 5 of Part III of the Income Tax Assessment Act 1936 .
Note 2: An amount included in the assessable income of a trustee under this provision will also affect the assessable income of a beneficiary of the trust, or the amount on which the trustee of the trust is assessed and liable to pay tax. This is because of Division 6 of Part III of that Act.
HistoryS 207-40 inserted by No 48 of 2002.
Adjustment of the amount included in the assessable income of an entity because of a distribution that flows indirectly
207-45(1)
Where:
(a) an amount is included in the assessable income of an entity under Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 ; and
(b) the amount is attributable to the *franking credit on a *distribution that *flows indirectly to the entity;then, despite anything in those Divisions, the amount that is included in the assessable income of the entity is equal to the entity's *share of the franking credit on the distribution.
207-45(2)
Where:
(a) as trustee of a trust, an entity is liable to be assessed on an amount under Division 6 of Part III of the Income Tax Assessment Act 1936 ; and
(b) the amount is attributable to the *franking credit on a *distribution that *flows indirectly to the trustee;then, despite anything in that Division, the amount on which the entity is assessed and liable to pay tax is equal to the entity's *share of the franking credit on the distribution.
HistoryS 207-45 inserted by No 48 of 2002.
Tax offset where distribution flows indirectly
207-50(1)
If:
(a) a *franked distribution *flows indirectly to an entity; and
(b) the entity is one of the following:
(i) an individual;
(ii) a *corporate tax entity;
(iii) a trustee that is liable to be assessed on a share of the *net income of the trust under section 98, 99 or 99A of the Income Tax Assessment Act 1936 ;
(iv) a trustee of an eligible entity within the meaning of Part IX of the Income Tax Assessment Act 1936 (certain superannuation funds, ADFs and PSTs are eligible entities);the entity is entitled to a *tax offset for the income year in which the distribution is made.
Note: These are the ultimate recipients of the distribution and so the ultimate taxpayers. For this reason, they are given the benefit of having income tax already paid on the profits underlying the distribution acknowledged when they pay income tax.
207-50(2)
The amount of the *tax offset is equal to the entity's *share of the *franking credit on the distribution.Note: The entity's share of the franking credit, and so the entity's tax offset, may be nil.
HistoryS 207-50 inserted by No 48 of 2002.
An entity's share of the franking credit on a franked distribution
207-55(1)
Use the following table to work out an entity's share of the *franking credit on a *franked distribution that *flows indirectly to the entity if:
(a) the distribution is made to a *partnership of which the entity is a partner; or
(b) the distribution is made to the trustee of a trust of which the entity is a beneficiary and a share of the *net income of the trust is included in the entity's assessable income under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; or
(c) the distribution is made to the entity as trustee of a trust and the entity is liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 in respect of the net income, or part of the net income, of the trust.
207-55(2)
Use the following table to work out an entity's share of the *franking credit on a *franked distribution that *flows indirectly to the entity if:
(a) the distribution *flows indirectly to a *partnership of which the entity is a *partner; or
(b) the distribution flows indirectly to the trustee of a trust of which the entity is a beneficiary and a share of the *net income of the trust is included in the entity's assessable income under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; or
(c) the distribution flows indirectly to the entity as trustee of a trust and the entity is liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 in respect of the net income, or part of the net income, of the trust.Before working out the entity's share of the franking credit, first work out the partnership's or trust's share of the franking credit, by applying this section to each entity to which the distribution flows indirectly on its way to the partnership or trust, starting with the entity whose share is worked out under subsection (1) and following the flow of the distribution from that entity to the partnership or trust.
Note: Where reference is made in the tables in subsection (1) and (2) to an amount attributable to a distribution, it is a reference to an amount attributable to the cash amount of the distribution.
HistoryS 207-55 inserted by No 48 of 2002.
SECTION 207-59 Franked distributions within class treated as single franked distribution 207-59(1)
Subsection (2) applies if:
(a) a trust receives 2 or more *franked distributions in an income year; and
(b) all of the franked distributions that the trust receives in the income year are, in accordance with the terms of the trust, to the extent that they are distributed in that income year, distributed within a single class.
S 207-59(1) amended by No 12 of 2012, s 3 and Sch 6 item 3, by substituting " Subsection (2) " for " Subsection (3) " , effective 21 March 2012.
207-59(2)
For the purposes of this Subdivision and Division 6E of Part III of the Income Tax Assessment Act 1936 , treat all of the *franked distributions that the trust receives in the income year as one single franked distribution.
207-59(3)
To avoid doubt, for the purposes of subsection (1), something is done in accordance with the terms of the trust if it is done in accordance with:
(a) the exercise of a power conferred by the terms of the trust; or
(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity.
S 207-59 inserted by No 62 of 2011, s 3 and Sch 2 item 24, effective 29 June 2011. For application provisions see note under s 115-200 .
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