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Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES

PART 3-6 - THE IMPUTATION SYSTEM

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Division 207 - Effect of receiving a franked distribution

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Subdivision 207-D - No gross-up or tax offset where distribution would not be taxed

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History

Subdiv 207-D substituted by No 83 of 2004, s 3 and Sch 10 item 8, 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-D formerly read:

Subdivision 207-D - Adjustments where the ultimate recipient of a distribution is not a resident

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History

Subdiv 207-D inserted by No 48 of 2002.

What this Subdivision is about
207-80
Adjustments are made where a franked distribution flows indirectly to a non-resident to ensure that the recipient is not taxed inappropriately.
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History

S 207-80 inserted by No 48 of 2002.

Adjustments where an entity to which a distribution flows indirectly is a non-resident
207-85(1)
Where a franked distribution flows indirectly to an entity who is not a resident, an amount of the distribution, worked out by applying the franking percentage for the distribution to the amount of the distribution that flows indirectly to the entity, is not included in the assessable income of the entity because of section 128D of the Income Tax Assessment Act 1936 .

207-85(2)
However, unless an adjustment were made, that entity's share of the franking credit on the distribution would be assessed.

207-85(3)
Adjustments are therefore made under this Subdivision to ensure that this does not occur.
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S 207-85 inserted by No 48 of 2002.

Adjustment for non-resident beneficiaries
207-90
Where:

(a) a *franked distribution *flows indirectly to an individual or a *corporate tax entity as beneficiary of a trust; and

(b) the distribution does not flow indirectly to the entity as trustee of a trust; and

(c) a share of the *net income of the trust is included in the assessable income of the entity, for the income year in which the distribution is made, under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; and

(d) but for section 128D of that Act, that share would include income to which section 128B of that Act would apply but for paragraph 128B(3)(ga);
a deduction is allowed from the assessable income of the entity for that income year of an amount worked out under Subdivision 207-J .

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S 207-90 inserted by No 48 of 2002.

Adjustment where trustee assessed for non-resident beneficiary
207-95
Where:

(a) a *franked distribution *flows indirectly to the trustee of a trust; and

(b) the trustee is liable to be assessed on a share of the *net income of the trust, for the income year in which the distribution is made, under section 98 of the Income Tax Assessment Act 1936 ; and

(c) but for section 128D of that Act, that share would include income to which section 128B of that Act would apply but for paragraph 128B(3)(ga);
the share of the net income of the trust on which the trustee is liable to be assessed is reduced by an amount worked out under Subdivision 207-J .

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History

S 207-95 inserted by No 48 of 2002.

Adjustment for non-resident partners
207-100
Where:

(a) a *franked distribution *flows indirectly to an individual or *corporate tax entity as partner in a *partnership; and

(b) the distribution does not flow indirectly to that entity as trustee of a trust; and

(c) either:

(i) a share of the *net income of the partnership is included in the entity's assessable income, for the income year in which the distribution is made, 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 to the entity, for the income year in which the distribution is made, under subsection 92(2) of that Act; and

(d) but for section 128D of that Act, that share would include income to which section 128B of that Act would apply but for paragraph 128B(3)(ga);
a deduction is allowed from the assessable income of the entity for that income year of the amount worked out under Subdivision 207-J .

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History

S 207-100 inserted by No 48 of 2002.

Operative provisions

SECTION 207-95 Distribution that flows indirectly to an entity

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Whole of share of distribution not assessable

207-95(1)
If:

(a) a *franked distribution *flows indirectly to an entity in an income year; and

(b) the entity ' s *share of the distribution would, in its hands, be *exempt income or *non-assessable non-exempt income (whether or not it had actually received that share);

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then, for the purposes of this Act:

(c) subsection (2), (3) or (4) (as appropriate) applies to the entity in relation to that income year; and

(d) the entity is not entitled to a *tax offset under this Division because of the distribution; and

(e) if the distribution flows indirectly through the entity to another entity - subsection 207-35(3) and section 207-45 do not apply to that other entity.

Note:

This section can therefore apply, for example, where the entity is a partner in a partnership that has a partnership loss and the entity does not actually receive any of the distribution.

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Partner

207-95(2)
If the *franked distribution *flows indirectly to the entity as a partner in a partnership under subsection 207-50(2) , the entity can deduct an amount for that income year that is equal to its *share of the *franking credit on the distribution.

Beneficiary

207-95(3)
If the *franked distribution *flows indirectly to the entity as a beneficiary of a trust under subsection 207-50(3) , the entity can deduct an amount for that income year that is equal to the lesser of:

(a) its share amount in relation to the distribution that is mentioned in that subsection; and

(b) its *share of the *franking credit on the distribution.

Trustee

207-95(4)

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If the *franked distribution *flows indirectly to the entity as the trustee of a trust under subsection 207-50(4) , the entity ' s share amount in relation to the distribution that is mentioned in that subsection is to be reduced by the lesser of:

(a) that share amount; and

(b) its *share of the *franking credit on the distribution.

Example:

A franked distribution of $70 is made to a partnership.

Under section 207-35 , an additional amount of $30 is included in the partnership ' s assessable income because of the distribution.

The partnership has 2 equal partners, X and Y. X is a foreign resident individual whose share of partnership ' s net income for the income year is $50 (share of distribution of $35 and share of franking credit of $15). That share of distribution is not assessable income and not exempt income under section 128D of the Income Tax Assessment Act 1936 .

X ' s assessable income of $15 (share of franking credit) is reduced to nil because of the deduction of $15 under subsection (2). Because of subsection (1), X is not entitled to a tax offset under section 207-45 .

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Part of share of distribution not assessable

207-95(5)
If:

(a) a *franked distribution *flows indirectly to an entity in an income year; and

(b) a part of the entity ' s *share of the distribution (the relevant part ) would, in its hands, be *exempt income or *non-assessable non-exempt income (whether or not it had actually received that part);

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then, subsection (2), (3) or (4) (as appropriate) applies to the entity on the basis that the amount of its *share of the *franking credit on the distribution is worked out as follows:

Relevant part
Entity ' s *share
of the *franked distribution

Entity ' s *share
of the *franking credit on
the *franked distribution
apart from this section

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207-95(6)
In addition, the following apply to an entity covered by subsection (5):

(a) if the distribution would otherwise *flow indirectly through the entity - the entity ' s *share of the distribution for the purposes of this Act (other than subsection (2), (3) or (4)) is to be reduced by the relevant part mentioned in subsection (5);

(b) if the entity would otherwise be entitled to a *tax offset under this Division because of the distribution - the amount of the tax offset is to be worked out as follows:

Entity ' s *share of
the *franking credit on the
*franked distribution apart from this section

−

Amount worked out
under subsection (5)

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