Tax Laws Amendment (2006 Measures No. 3) Act 2006 (80 of 2006)
Schedule 4 Simplified imputation system (share capital tainting rules)
Part 1 The rewritten share capital tainting rules
Division 2 Application and transitional provisions
Income Tax (Transitional Provisions) Act 1997
2 At the end of Part 3-5
Add:
Division 197 - Tainted share capital accounts
Table of Subdivisions
197-A Definitions
197-B General application provision
197-C Special provisions about companies whose share capital accounts were tainted when old Division 7B was closed off
Subdivision 197-A - Definitions
Table of sections
197-1 Definitions
197-1 Definitions
In this Part:
introduction day means the day on which the Bill for the Act that added this Division was introduced into the Parliament.
new Division 197 means Division 197 of the Income Tax Assessment Act 1997.
old Division 7B means Division 7B of Part IIIAA of the Income Tax Assessment Act 1936.
old Division 7B close-off day means 1 July 2002.
Subdivision 197-B - General application provision
Table of sections
197-5 Application of new Division 197
197-5 Application of new Division 197
Subject to Subdivision 197-C of this Division, new Division 197 applies to transfers made into a company's share capital account after the introduction day.
Subdivision 197-C - Special provisions about companies whose share capital accounts were tainted when old Division 7B was closed off
Table of sections
197-10 Subdivision applies to companies whose share capital accounts were tainted when old Division 7B was closed off
197-15 Account taken to have ceased to be tainted when old Division 7B was closed off
197-20 After introduction day, account taken to have become tainted under new Division 197 to extent of previous tainting
197-25 Special provisions if company chooses to untaint after introduction day
197-10 Subdivision applies to companies whose share capital accounts were tainted when old Division 7B was closed off
This Subdivision applies to a company if, immediately before the old Division 7B close-off day, the company's share capital account was tainted under old Division 7B.
197-15 Account taken to have ceased to be tainted when old Division 7B was closed off
(1) The company's share capital account is taken to have ceased to be tainted under old Division 7B at the start of the Division 7B close-off day.
(2) No liability to untainting tax, and no franking debit, arises under old Division 7B in relation to the share capital account being taken to have ceased to be tainted.
197-20 After introduction day, account taken to have become tainted under new Division 197 to extent of previous tainting
(1) Immediately after the introduction day, the company's share capital account is taken to become tainted under new Division 197 as if:
(a) the company had, at that time, transferred an amount (the notionally transferred amount ) to its share capital account from another of its accounts that equalled the tainting amount (the old Division 7B tainting amount ), within the meaning of old Division 7B, in relation to the share capital account immediately before the old Division 7B close-off day; and
(b) none of the exclusions in sections 197-10 to 197-40 of new Division 197 applied, to any extent, in relation to the notionally transferred amount.
(2) No franking debit arises under Subdivision 197-B of new Division 197 in relation to the notionally transferred amount.
197-25 Special provisions if company chooses to untaint after introduction day
(1) This section applies if, after the introduction day, the company chooses under section 197-55 of new Division 197 to untaint its share capital account.
Working out the amount of section 197-60 untainting tax
(2) For the purpose of section 197-60 of new Division 197, the tainting amount at the time of the choice to untaint is taken to consist of:
(a) the amounts (the old Division 7B tainting amount components ) that made up the old Division 7B tainting amount; and
(b) any amounts to which new Division 197 applies that have been transferred to the company's share capital account since the introduction day and before the choice to untaint is made.
Note 1: The company will not be liable to untainting tax if it is covered by subsection (5).
Note 2: If the company is covered by subsection (6), the old Division 7B tainting amount components will not be included in the tainting amount for the purpose of section 197-60.
(3) For the purpose of section 197-60 of new Division 197, a reference to the section 197-45 franking debit that arose in relation to an old Division 7B tainting amount component is taken to be a reference to the tax-paid-basis franking debit amount in relation to that component (see subsection (4)).
(4) For the purpose of subsection (3), the tax-paid-basis franking debit amount , in relation to an old Division 7B tainting amount component, is the amount worked out in accordance with the formula:
(Class A franking debit x (39 / 61)) + (Class C franking debit x (30 / 70))
where:
class A franking debit means the class A franking debit (if any) that arose under section 160ARDV of old Division 7B in relation to the old Division 7B tainting amount component.
class C franking debit means the class C franking debit that arose under section 160ARDQ or 160ARDV of old Division 7B in relation to the old Division 7B tainting amount component.
(5) The company is not liable to untainting tax under section 197-60 of new Division 197 in relation to the choice to untaint if:
(a) during the period from the time when the company's share capital account became tainted under old Division 7B to the time when the choice to untaint is made, the company was a company with only lower tax shareholders (as defined in subsection 197-60(1) of new Division 197); and
(b) the tainting amount for the purpose of section 197-60 of new Division 197 does not include any amounts of the kind mentioned in paragraph (2)(b) of this section.
(6) If:
(a) the tainting amount for the purpose of section 197-60 of new Division 197 consists of or includes an amount or amounts of the kind mentioned in paragraph (2)(b) of this section; and
(b) during the period from the time when the company's share capital account became tainted to the time when the amount, or the first of the amounts, referred to in paragraph (a) of this subsection was transferred into the company's share capital account, the company was a company with only lower tax shareholders (as defined in subsection 197-60(1) of new Division 197);
then, despite subsection (2) of this section, for the purpose of section 197-60 of new Division 197, the tainting amount at the time of the choice to untaint does not include the old Division 7B tainting amount components.
Working out the amount of section 197-65 franking debit
(7) For the purpose of section 197-65 of new Division 197, the tainting amount at the time of the choice to untaint is taken to consist of:
(a) the amounts (the old Division 7B tainting amount components ) that made up the old Division 7B tainting amount; and
(b) any amounts to which new Division 197 applies that have been transferred to the company's share capital account since the introduction day and before the choice to untaint is made.
Note: In relation to amounts described in paragraph (b), section 197-65 applies without any notional modifications.
(8) Paragraph 197-65(1)(b) of new Division 197 has effect in relation to each old Division 7B tainting amount component as if the following paragraph (the notionally substituted paragraph ) were substituted for it:
(b) the tax-paid-basis franking debit amount in relation to the old Division 7B tainting amount component is less than the amount calculated by the formula in subsection 197-65(3) in relation to the component.
(9) Subsection 197-65(3) of new Division 197 has effect in relation to each old Division 7B tainting amount component as if the reference to the amount of the franking debit that arose under section 197-45 in relation to the transferred amount were instead a reference to the tax-paid-basis franking debit amount in relation to the old Division 7B tainting amount component.
(10) For the purpose of the notionally substituted paragraph, and of subsection (9) of this section, the tax-paid-basis franking debit amount , in relation to an old Division 7B tainting amount component, is the amount worked out in accordance with the formula:
(Class A franking debit x (39 / 61)) + (Class C franking debit x (30 / 70))
where:
class A franking debit means the class A franking debit (if any) that arose under section 160ARDV of old Division 7B in relation to the old Division 7B tainting amount component.
class C franking debit means the class C franking debit that arose under section 160ARDQ or 160ARDV of old Division 7B in relation to the old Division 7B tainting amount component.