New Business Tax System (Debt and Equity) Act 2001 (163 of 2001)
Schedule 1 Debt and equity interests
Part 2 Amendment of the Income Tax Assessment Act 1936
Income Tax Assessment Act 1936
98 After section 160APA
Insert:
160APAAAA Certain non-share dividends by ADIs not frankable
(1) A non-share dividend paid by an ADI (authorised deposit-taking institution) for the purposes of the Banking Act 1959 is not a frankable dividend if:
(a) the ADI is a resident of Australia; and
(b) the non-share dividend is paid in respect of a non-share equity interest that:
(i) by itself; or
(ii) in combination with one or more schemes that are related schemes (within the meaning of the Income Tax Assessment Act 1997) to the scheme under which the interest arises;
forms part of the ADI's Tier 1 capital either on a solo or consolidated basis (within the meaning of the prudential standards); and
(c) the non-share equity interest is issued at or through a permanent establishment of the ADI in a broad-exemption listed country (within the meaning of Part X); and
(d) the funds from the issue of the non-share equity interest are raised and applied solely for one or more permitted purposes (see subsection (2)) in relation to the non-share equity interest.
(2) The permitted purposes in relation to the non-share equity interest (the relevant interest ) are the following:
(a) the purpose of the business of the ADI carried on at or through the permanent establishment other than the transfer of funds directly or indirectly to:
(i) the Australian head office of the permanent establishment; or
(ii) any connected entity of the ADI that is a resident of Australia; or
(iii) a permanent establishment of the ADI, or of a connected entity of the ADI, located in Australia;
(b) the purpose of redeeming:
(i) a debt interest; or
(ii) a non-share equity interest;
that is issued, before the relevant interest is issued, at or through the permanent establishment and is held by a connected entity of the ADI that is a resident of Australia;
(c) the purpose of returning funds to:
(i) the Australian head office of the permanent establishment; or
(ii) a permanent establishment of the ADI or of a connected entity of the ADI, located in Australia;
if the funds are contributed, before the relevant interest is issued, for use in the business of the ADI carried on at or through the permanent establishment.
160APAAAB Non-share dividends not frankable unless profits available
(1) This section applies if:
(a) a company pays a non-share dividend; and
(b) immediately before the payment, the available frankable profits of the company were less than the amount of the non-share dividend.
(2) If the available frankable profits of the company at the relevant time is nil or negative, the non-share dividend:
(a) is not frankable; and
(b) is not a dividend to which paragraph 160AQF(1)(c), (1AA)(c) or (1AAA)(c) or 160AQFA(1)(c) or (2)(c) or section 160AQG applies.
Example: A company has no profits except profits from the revaluation of an asset. It pays a non-share dividend to a non-share equity holder. The non-share dividend is not a frankable dividend because the company's available frankable profits at the time of payment is nil.
Note that dividends from asset revaluation reserves are not frankable because of paragraph (g) of the definition of frankable dividend in section 160APA.
(3) In any other case, the non-share dividend (the original dividend ) is taken, for the purposes of the relevant provisions, to consist of 2 separate non-share dividends:
(a) a non-share dividend that is a frankable non-share dividend; and
(b) a non-share dividend that:
(i) is not a frankable non-share dividend; and
(ii) is not a dividend to which paragraph 160AQF(1)(c), (1AA)(c) or (1AAA)(c) or 160AQFA(1)(c) or (2)(c) or section 160AQG applies.
The relevant provisions are sections 45Z to 46M, this Part and any other provision of this Act whose operation depends on this Part.
(4) The amount of the non-share dividend referred to in paragraph (3)(a) is equal to the available frankable profits.
(5) The amount of the non-share dividend referred to in paragraph (3)(b) is the difference between the original dividend and the frankable dividend referred to in paragraph (3)(a).
(6) A company that pays a non-share dividend may anticipate available frankable profits if:
(a) the company:
(i) has announced the payment of; or
(ii) is committed or has resolved (formally or informally) to pay;
share dividends (the committed share dividends ) after payment of the non-share dividend; and
(b) but for this subsection, subsection (2) or (3) would apply to the non-share dividend mentioned in paragraph (a); and
(c) the company's available frankable profits would be greater than nil at the relevant time if the committed share dividends were ignored; and
(d) it is reasonable to expect that available profits will arise after payment of the non-share dividend and before payment of the committed share dividends.
The available frankable profits immediately before the company pays the non-share dividend are then the amount estimated by the company having regard to the expected profits referred to in paragraph (c).
(7) The amount estimated under subsection (6) must not exceed:
(Actual available frankable profits + Adjusted expected profits)
where:
actual available frankable profits is the available frankable profits the company would have immediately before paying the non-share dividend apart from subsection (6).
adjusted expected profits is the lesser of:
(a) the available profits that it is reasonable to expect will arise after payment of the non-share dividend and before payment of the committed share dividends; and
(b) the difference between the amount of the frankable non-share dividend that would, apart from subsection (6), arise under subsections (2) and (3) and the amount of the frankable non-share dividend that would, apart from subsection (6), arise under those subsections if the committed share dividends were ignored.
For the purposes of paragraph (b), a frankable non-share dividend of nil amount is taken to arise under subsection (2).
(8) A class C franking debit arises for a company if:
(a) the company anticipates available frankable profits under subsection (6); and
(b) the available frankable profits of the company are negative:
(i) when the last of the committed share dividends are paid; or
(ii) immediately before the end of the franking year following the franking year in which the non-share dividend is paid;
whichever is the earlier.
(9) The class C franking debit that arises under subsection (8) is equal to the lesser of:
(a) the amount by which the available frankable profits is below zero; and
(b) the franked amount of the non-share dividend.
(10) In working out the company's available profits for the purposes of subsections (8) and (9), disregard:
(a) any dividends that:
(i) the company announces, or becomes committed to or resolves (formally or informally) to pay after the payment of the non-share dividend; and
(ii) has not been paid; and
(b) any estimate made by the company under subsection (6) after the non-share dividend is paid.
(11) If a company pays a number of non-share dividends at the same time, this section applies as if:
(a) a reference to a non-share dividend were a reference to each of those non-share dividends; and
(b) the reference in paragraph (1)(b) to the amount of the non-share dividend were a reference to the sum of the amounts of the non-share dividends; and
(c) the reference in subsection (4) to the available frankable profits were a reference to the amount worked out using the formula:
(Amount of the non-share dividend / Sum of the amounts of all those non-share dividends) * Available frankable profits
(d) the reference to the amount of the frankable non-share dividend in paragraph (b) of the definition of adjusted expected profits in subsection (7) were a reference to the sum of the amounts of the frankable non-share dividends; and
(e) the reference in paragraph (9)(b) to the franked amount of the non-share dividend were a reference to the sum of the franked amounts of the non-share dividends.
(12) A company's available frankable profits at a particular time in relation to a non-share dividend is the amount worked out using the formula:
Maximum frankable amount - [Committed share dividends + Undebited non-share dividends]
where:
committed share dividends means the amount of share dividends the company will make at that time, or after that time, if the company has announced their payment, or is committed or has resolved (formally or informally) to pay them.
maximum frankable amount means the maximum amount of frankable share dividends that the company could pay at that time having regard to its available profits at that time.
undebited non-share dividends means the sum of the franked amounts of the non-share dividends that:
(a) were not debited to available profits; and
(b) were paid within the preceding 2 franking years or were paid under the same scheme under which the company pays the non-share dividend.
(13) In this section:
share dividend means a dividend that is not a non-share dividend.