Taxation Laws Amendment Act (No. 2) 1999 (93 of 1999)

Schedule 5   Franking of dividends by exempting companies and former exempting companies

Income Tax Assessment Act 1936

61   At the end of Subdivision A of Division 6 of Part IIIAA

Add:

160AQTA Where franked dividend paid by exempting company

Grossed-up amount not to be included in assessable income of shareholder

(1) Subject to subsections (2) and (5), section 160AQT does not apply in relation to a class A franked dividend, a class B franked dividend, or a class C franked dividend, paid to a shareholder by an exempting company.

Exception where shareholder is life assurance company holding all the shares or substantially bearing the risks associated with holding the shares

(2) Subsection (1) does not preclude section 160AQT from applying in relation to a franked dividend paid by an exempting company to a life assurance company (other than a life assurance company acting as a trustee) in respect of accountable shares held by the life assurance company in the exempting company if:

(a) the exempting company and the life assurance company are members of the same effectively wholly-owned group of companies; or

(b) the life assurance company holds more than 5% of the shares in the exempting company (other than finance shares or dividend access shares within the meaning of section 160APHBC or shares that do not carry the right to receive dividends) and it would be reasonable to conclude that the risks involved in, and the opportunities resulting from, holding those shares are substantially borne by, or substantially accrue to, the life assurance company.

Matters to be taken into account in determining whether life assurance company bears the risks associated with the holding of shares

(3) In deciding whether it would be reasonable to conclude as mentioned in paragraph (2)(b):

(a) regard is to be had to any arrangement in respect of shares (including unissued shares) in the exempting company held by persons who are not, and are not associates of, the life assurance company (including any derivatives held or issued in connection with those shares); but

(b) no regard is to be had to risks involved in the ownership of shares in the exempting company that are substantially borne by any person in the person's capacity as a secured creditor.

Exception for grossing-up limited to grossed-up amount attributable to credits arising while life assurance company held shares

(4) Subsection (2) does not apply to so much of the franked amount of a franked dividend paid by an exempting company to a life assurance company as related to franking credits of the exempting company that arose at a time before the life assurance company acquired the shares in respect of which the dividend was paid.

Exception where shares held under employee share scheme

(5) Subsection (1) does not preclude section 160AQT from applying in relation to a franked dividend paid by an exempting company in respect of a share held by a person who:

(a) was an employee of the exempting company, or of a company that was a subsidiary of the exempting company, at the time when the dividend was paid; and

(b) acquired the share under an eligible employee share scheme; and

(c) did not hold the share as a trustee.

160AQTB Where exempted dividend paid by former exempting company

Grossed-up amount to be included in assessable income of life assurance company that holds shares

(1) Subject to this section, if:

(a) a class A exempted dividend, or a class C exempted dividend, is paid in a year of income to a shareholder in a former exempting company in respect of accountable shares held by the shareholder in the former exempting company; and

(b) at both of the following times:

(i) the time when the dividend was paid;

(ii) the time immediately before the former exempting company ceased to be an exempting company;

the shareholder was a life assurance company;

subsection 160AQT(1A) or (1C) applies as if the dividend were a class A franked dividend or a class C franked dividend and the class A exempted amount or class C exempted amount were a class A franked amount or a class C franked amount, as the case may be.

Grossing-up limited to grossed-up amount attributable to credits arising while life assurance company held shares

(2) Subsection (1) does not apply to so much of the exempted amount of an exempted dividend paid by a former exempting company to a life assurance company as related to exempting credits of the former exempting company that arose at a time before the life assurance company acquired the shares in respect of which the dividend was paid.

Grossed-up amount to be included in assessable income of holder of shares under employee share scheme

(3) If a class A exempted dividend, or a class C exempted dividend, is paid in a year of income in respect of a share in a former exempting company held by a person who:

(a) was an employee of the former exempting company, or of a company that was a subsidiary of the former exempting company, at the time when the dividend was paid; and

(b) acquired the share under an eligible employee share scheme;

subsection 160AQT(1) or (1AB) applies as if the dividend were a class A franked dividend or a class C franked dividend and the class A exempted amount or class C exempted amount were a class A franked amount or a class C franked amount, as the case may be.

160AQTC Subsidiaries

The question whether a company is a subsidiary of another company for the purposes of sections 160AQTA and 160AQTB is to be determined in the same way as the question whether a corporation is a subsidiary of another corporation is determined under the Corporations Law.