Income Tax Assessment Act 1997
CHAPTER 3
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SPECIALIST LIABILITY RULES
PART 3-6
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THE IMPUTATION SYSTEM
Division 207
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Effect of receiving a franked distribution
Guide to Division 207
SECTION 207-5
Overview
207-5(1)
If a corporate tax entity makes a franked distribution to one of its members, then, as a general rule:
(a) an amount equal to the franking credit on the distribution is included in the member ' s assessable income; and
(b) the member is entitled to a tax offset equal to the same amount.
207-5(2)
In some cases a residency requirement must be satisfied for the general rule to apply.
207-5(3)
If a franked distribution is made to a member that is a partnership or the trustee of a trust, an amount equal to the franking credit on the distribution is also included in the member ' s assessable income as mentioned in paragraph (1)(a).
207-5(4)
However, a tax offset in relation to that distribution is only available to an entity (who may be a partner, beneficiary or a trustee) if the distribution flows indirectly to it and does not flow indirectly through it to another entity. The tax offset is equal to its share of the franking credit on the distribution.
207-5(5)
There are exceptions to both the general rule mentioned in subsection (1) and the special rule mentioned in subsection (4). Basically, these exceptions are created:
(a) where the relevant entity would not have paid tax on the distribution or a share of the distribution (see Subdivisions 207-D and 207-E ); and
(b) where there is a manipulation of the imputation system in a manner that is not permitted under the income tax law (see Subdivision 207-F ).
View history note
Hide history noteIf a corporate tax entity makes a franked distribution to one of its members, then, as a general rule:
(a) an amount equal to the franking credit on the distribution is included in the member ' s assessable income; and
(b) the member is entitled to a tax offset equal to the same amount.
207-5(2)
In some cases a residency requirement must be satisfied for the general rule to apply.
207-5(3)
If a franked distribution is made to a member that is a partnership or the trustee of a trust, an amount equal to the franking credit on the distribution is also included in the member ' s assessable income as mentioned in paragraph (1)(a).
207-5(4)
However, a tax offset in relation to that distribution is only available to an entity (who may be a partner, beneficiary or a trustee) if the distribution flows indirectly to it and does not flow indirectly through it to another entity. The tax offset is equal to its share of the franking credit on the distribution.
Note:
That share is a notional amount and the entity can have that share without actually receiving any of that franking credit or distribution.
207-5(5)
There are exceptions to both the general rule mentioned in subsection (1) and the special rule mentioned in subsection (4). Basically, these exceptions are created:
(a) where the relevant entity would not have paid tax on the distribution or a share of the distribution (see Subdivisions 207-D and 207-E ); and
(b) where there is a manipulation of the imputation system in a manner that is not permitted under the income tax law (see Subdivision 207-F ).
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