New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 (117 of 2002)

Schedule 18   Imputation system transitionals

Income Tax (Transitional Provisions) Act 1997

7   At the end of Division 205

Add:

205-15 Converting the franking account balance to a tax paid basis - companies whose 2001-02 franking year ends before 30 June 2002

(1) This section applies to companies whose 2001-02 franking year ends before 30 June 2002 under Part IIIAA of theIncome Tax Assessment Act 1936(the 1936 Act ).

(2) If, but for this subsection, the company would have a franking surplus of a particular class under Part IIIAA of the 1936 Act at the end of 30 June 2002 (an original surplus ):

(a) a franking debit equal to the surplus is taken to arise for the company under Part IIIAA of the 1936 Act at the end of 30 June 2002; and

(b) a franking credit arises on 1 July 2002 in the franking account established under section 205-10 of theIncome Tax Assessment Act 1997(the 1997 Act ) for the company.

The amount of the franking credit is worked out under subsection (3).

(3) The franking credit generated under paragraph (2)(b) from an original surplus of a class specified in column 2 of the following table is worked out using the formula in column 3 of the table for that class.

(4) If, but for this subsection, the company would have a franking deficit of a particular class under Part IIIAA of the 1936 Act at the end of 30 June 2002 (an original deficit ):

(a) a franking credit equal to the deficit is taken to arise for the company under Part IIIAA of the 1936 Act at the end of 30 June 2002; and

(b) a franking debit arises on 1 July 2002 in the franking account established under section 205-10 of the 1997 Act for the company.

The amount of the franking debit is worked out under subsection (5).

(5) The franking debit generated under paragraph (4)(b) from an original deficit of a class specified in column 2 of the following table is worked out using the formula in column 3 of the table for that class.

205-20 A late balancing company may elect to have its FDT liability determined on 30 June

(1) This section applies after 30 June 2002.

(2) A corporate tax entity's liability to pay franking deficit tax is determined under sections 205-25 and 205-30 of this Act (the transitional provisions ), and not under sections 205-45 and 205-50 of theIncome Tax Assessment Act 1997(the ongoing provisions ), if:

(a) the entity was in existence at the end of 30 June 2002; and

(b) the entity's 2001-02 income year ends after 30 June 2002; and

(c) the entity makes a valid election to have its liability to pay franking deficit tax determined under the transitional provisions.

(3) The entity makes a valid election to have its liability to pay franking deficit tax determined under the transitional provisions if:

(a) the election is in writing; and

(b) the election is made on the day on which liability for franking deficit tax would be determined under those provisions,or earlier than that day but in the income year in which that day occurs; and

(c) the entity's liability to pay franking deficit tax has not previously been determined under the ongoing provisions.

205-25 Franking deficit tax

Object

(1) While recognising that an entity may anticipate franking credits when franking distributions, the object of this section is to prevent those credits from being anticipated indefinitely by requiring the entity to reconcile its franking account at certain times and levying tax if the account is in deficit.

Franking deficit at end of 30 June

(2) An entity is liable to pay franking deficit tax imposed by theNew Business Tax System (Franking Deficit Tax) Act 2002if its franking account is in deficit at the end of 30 June in the year 2003 or a later year.

Corporate tax entity ceases to be a franking entity

(3) An entity is liable to pay franking deficit tax imposed by theNew Business Tax System (Franking Deficit Tax) Act 2002if:

(a) it ceases to be a franking entity after 30 June 2002; and

(b) immediately before it ceases to be a franking entity, its franking account is in deficit.

Note: The tax is imposed in theNew Business Tax System (Franking Deficit Tax) Act 2002and the amount of the tax is set out in that Act.

205-30 Deferring franking deficit

Object

(1) The object of this section is to ensure that an entity does not avoid franking deficit tax by deferring the time at which a franking debit occurs in its franking account.

End of year deficit deferred

(2) If:

(a) a corporate tax entity receives a refund of income tax within 3 months after 30 June in the year 2003 or a later year; and

(b) the refund is attributable to a period of 12 months ending at the end of 30 June in that year; and

(c) the franking account of the entity would have been in deficit, or in deficit to a greater extent, at the end of 30 June in that year if the refund had been received immediately before that time;

the refund is taken to have been paid to the entity immediately before that time.

Deficit on ceasing to be a franking entity deferred

(3) If an entity ceases to be a franking entity during a period of 12 months ending on 30 June in the year 2003 or a later year, a refund of income tax is taken to have been paid to it immediately before it ceased to be a franking entity, for the purposes of subsection 205-25(3), if:

(a) the refund is attributable to a period within that 12 months during which the entity was a franking entity; and

(b) the refund is paid within 3 months after the entity ceases to be a franking entity; and

(c) the franking account of the entity would have been in deficit, or in deficit to a greater extent, immediately before it ceased to be a franking entity, if the refund had been received before it ceased to be a franking entity.

205-35 No franking deficit tax if franking account in deficit at the close of the 2001-02 income year of a late balancing entity

If:

(a) an entity's 2001-02 income year ends after 30 June 2002; and

(b) its franking account is in deficit at the end of that income year;

the entity is not liable to pay franking deficit tax under subsection 205-45(2) of theIncome Tax Assessment Act 1997because the account is in deficit at that time.