Tax Laws Amendment (2006 Measures No. 2) Act 2006 (58 of 2006)

Schedule 7   Technical corrections and improvements

Part 1   Amendments commencing on Royal Assent

Income Tax Assessment Act 1997

90   At the end of subsection 205-70(2) (after the note)

Add:

Example: The following apply to a corporate tax entity that satisfies the residency requirement for an income year:

· the entity's income tax liability for that year would be $100,000 if its tax offsets were disregarded;

· for that year, the entity has a tax offset of $60,000 under this section (the franking deficit offset ) and a tax offset of $80,000 in respect of overseas tax paid by the entity (the foreign tax credit ).

Under section 63-10 (about tax offset priority rules), the foreign tax credit must be applied before the franking deficit offset is applied. As a result, that credit and $20,000 of the franking deficit offset combine to reduce the entity's income tax liability to nil. The remaining $40,000 of the franking deficit offset will be included in a franking deficit offset for the next income year for which the entity satisfies the residency requirement.