Tax Laws Amendment (2004 Measures No. 2) Act 2004 (83 of 2004)
Schedule 10 Franked distributions received through certain partnerships and trustees
Part 2 Amendments commencing on 29 June 2002
Income Tax Assessment Act 1997
14 Sections 207-145 and 207-150
Repeal the sections, substitute:
207-145 Distribution that is made to an entity
Whole of distribution manipulated
(1) If a *franked distribution is made to an entity in one or more of the following circumstances:
(a) the entity is not a qualified person in relation to the distribution for the purposes of Division 1A of Part IIIAA of the Income Tax Assessment Act 1936;
(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of that Act that no imputation benefit (within the meaning of that section) is to arise in respect of the distribution for the entity;
(c) the Commissioner has made a determination under paragraph 204-30(3)(c) of this Act that no *imputation benefit is to arise in respect of the distribution for the entity;
(d) the distribution is made as part of a *dividend stripping operation;
then, for the purposes of this Act:
(e) the amount of the *franking credit on the distribution is not included in the assessable income of the entity under section 207-20 or 207-35; and
(f) the entity is not entitled to a *tax offset under this Subdivision because of the distribution; and
(g) if the distribution *flows indirectly through the entity to another entity - subsection 207-35(3) and section 207-45 do not apply to that other entity.
Part of share of distribution manipulated
(2) If:
(a) a *franked distribution is made to an entity; and
(b) the Commissioner makes a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise in respect of a specified part of the distribution (the specified part ) for the entity;
then, for the purposes of this Act:
(c) the amount of the distribution is taken to have been reduced by the specified part; and
(d) the amount of the *franking credit on the distribution is to be worked out as follows:
([Franked distribution apart from this section - Specified part] / Franked distribution apart from this section) * Franking credit on the franked distribution apart from this section
Example: A franked distribution of $70 is made to the trustee of a trust. Apart from this section, the franking credit on the distribution ($30) would be included in the assessable income of the trust under section 207-35.
The Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise for the trustee in respect of $49 of the distribution.
Under this subsection, the amount included in the assessable income of the trust under section 207-35 because of the distribution is reduced from $30 to $9.
If there is a beneficiary of the trust that is presently entitled to the trust's income, the amount of the distribution that flows indirectly to the beneficiary is reduced from $70 to $21 under this subsection.
What happens if both subsection 207-90(2) and subsection (2) of this section would apply
(3) If, apart from this subsection, both subsection 207-90(2) and subsection (2) of this section would apply to an entity in relation to a *franked distribution, then:
(a) apply subsection 207-90(2) first; and
(b) apply subsection (2) of this section on the basis that the amount of the *franked distribution had been reduced under subsection 207-90(2).
207-150 Distribution that flows indirectly to an entity
Whole of share of distribution manipulated
(1) If a *franked distribution *flows indirectly to an entity in an income year in one or more of the following circumstances:
(a) the entity is not a qualified person in relation to the distribution for the purposes of Division 1A of Part IIIAA of the Income Tax Assessment Act 1936;
(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of that Act that no imputation benefit (within the meaning of that section) is to arise in respect of the distribution for the entity;
(c) the Commissioner has made a determination under paragraph 204-30(3)(c) of this Act that no *imputation benefit is to arise in respect of the distribution for the entity;
(d) the distribution is treated as an interest payment for the entity under section 207-160 of this Act;
(e) the distribution is made as part of a *dividend stripping operation;
then, for the purposes of this Act:
(f) subsection (2), (3) or (4) (as appropriate) applies to the entity in relation to that income year; and
(g) the entity is not entitled to a *tax offset under this Subdivision because of the distribution; and
(h) if the distribution *flows indirectly through the entity to another entity - subsection 207-35(3) and section 207-45 do not apply to that other entity.
Partner
(2) If the *franked distribution *flows indirectly to the entity as a partner in a partnership under subsection 207-50(2), the entity can deduct an amount for that income year that is equal to its *share of the *franking credit on the distribution.
Beneficiary
(3) If the *franked distribution *flows indirectly to the entity as a beneficiary of a trust under subsection 207-50(3), the entity can deduct an amount for that income year that is equal to the lesser of:
(a) its share amount in relation to the distribution that is mentioned in that subsection; and
(b) its *share of the *franking credit on the distribution.
Trustee
(4) If the *franked distribution *flows indirectly to the entity as the trustee of a trust under subsection 207-50(4), the entity's share amount in relation to the distribution that is mentioned in that subsection is to be reduced by the lesser of:
(a) that share amount; and
(b) its *share of the *franking credit on the distribution.
Part of share of distribution manipulated
(5) If:
(a) a *franked distribution *flows indirectly to an entity in an income year; and
(b) the Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise in respect of a specified part of the distribution (the specified part ) for the entity;
then, subsection (2), (3) or (4) (as appropriate) applies to the entity on the basis that the amount of its *share of the *franking credit on the distribution is worked out as follows:
(Specified part / Entity's share of the franked distribution) * Entity's share of the franking credit on the franked distribution apart from this section
(6) In addition, the following apply to an entity covered by subsection (5):
(a) if the distribution would otherwise *flow indirectly through the entity - the entity's *share of the distribution for the purposes of this Act (other than subsection (2), (3) or (4)) is to be reduced by the specified part mentioned in subsection (5);
(b) if the entity would otherwise be entitled to a *tax offset under this Subdivision because of the distribution - the amount of the tax offset is to be worked out as follows:
Entity's share of the franking creidit on the franked idistribution apart from this section - Amount worked out under subsection (5)
Example: X is a partner in a partnership to which a franked distribution of $140 is made. The franking credit on the distribution ($60) is included in the assessable income of the partnership under section 207-35. X's share of the distribution is $70 and its share of the franking credit on the distribution is $30.
The Commissioner has made a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 that no imputation benefit (within the meaning of that section) is to arise for X in respect of $42 of the distribution.
Under subsection (5), X will be allowed a deduction of $18.
X is the trustee of a trust and the distribution will flow indirectly through X to beneficiaries of the trust. For the purposes of working out a beneficiary's share of the distribution and its share of the franking credit, X's share of the franked distribution is reduced to $28 under this subsection.
What happens if both subsection 207-95(1) and subsection (1) of this section would apply
(7) If, apart from this subsection, both subsection 207-95(1) and subsection (1) of this section would apply to an entity in relation to a *franked distribution, then:
(a) subsection (1) of this section applies to the entity; but
(b) subsection 207-95(1) does not apply to the entity.
What happens if both subsection 207-95(5) and subsection (5) of this section would apply
(8) If, apart from this subsection, both subsection 207-95(5) and subsection (5) of this section would apply to an entity in relation to a *franked distribution, then:
(a) apply subsections 207-95(5) and (6) first; and
(b) apply subsections (5) and (6) of this section on the basis that:
(i) the amount of the entity's *share of the *franking credit on the distribution had been reduced under subsection 207-95(5); and
(ii) the amount of the entity's *share of the distribution had been reduced under subsection 207-95(6).