Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 (101 of 2006)

Schedule 2   Consequential amendments relating to Schedule 1 repeals etc.

Part 1   Amendments: general

Income Tax Assessment Act 1936

329   Section 124ZM

Repeal the section, substitute:

124ZM Treatment distributions to shareholders in PDF

Unfranked part of distribution exempt from income tax

(1) If a company makes a distribution to a shareholder at a time when the company is a PDF, the unfranked part of the distribution is exempt from income tax.

Rest of section deals with franked part

(2) The rest of this section applies to the franked part of the distribution.

Usual case

(3) Subsection (4) applies if the assessable income of a year of income of a taxpayer who or that is:

(a) a company or a natural person (other than a company or natural person in the capacity of a trustee); or

(b) a corporate unit trust in relation to that year of income; or

(c) a public trading trust in relation to that year of income; or

(d) an eligible entity within the meaning of Part IX in relation to that year of income;

would (apart from subsection (4)) include:

(e) the franked part of the distribution; or

(f) any of the franked part of the distribution that flows indirectly to the taxpayer.

This subsection does not apply to cases dealt with in subsections (5) and (6).

(4) Subject to subsection (7), the following is exempt income of the taxpayer:

(a) if paragraph (3)(e) applies - the franked part;

(b) if paragraph (3)(f) applies - so much of the franked part of the distribution as flows indirectly to the taxpayer.

Taxpayers who qualify for venture capital franking tax offset

(5) If a taxpayer (other than a life assurance company) is entitled to a tax offset in relation to the distribution under section 210-170 of the Income Tax Assessment Act 1997, then:

(a) so much of the franked part of the distribution as equals the part of the distribution that is franked with a venture capital credit is exempt income of the taxpayer; and

(b) if the franked part exceeds the amount so exempt - the excess is, subject to subsection (7), exempt income of the taxpayer.

(6) If a life assurance company is entitled to a tax offset in relation to the distribution under section 210-170 of the Income Tax Assessment Act 1997, then:

(a) so much of the franked part of the distribution as equals the amount worked out using the following formula is exempt income of the life assurance company:

Venture capital franked part x (Complying superannuation class of taxable income / Total income)

where:

complying superannuation class of taxable income is the life assurance company's complying superannuation class of taxable income, within the meaning of subsection 995-1(1) of the Income Tax Assessment Act 1997, for the year of income in which the distribution is made.

venture capital franked part is the part of the distribution that is franked with a venture capital credit.

total income is the life assurance company's assessable income for the year of income in which the distribution is made; and

(b) if the franked part exceeds the amount so exempt - the excess is, subject to subsection (7), exempt income of the life assurance company.

No exemption if return prepared on basis that amount assessable

(7) Subsection (4) and paragraphs (5)(b) and (6)(b) do not exempt, and are taken never to have exempted, an amount if the taxpayer's return of income of the year of income is prepared on the basis that the amount is included in the taxpayer's assessable income of that year.

Where partner entitled to deduction for amount flowing indirectly

(8) If:

(a) any of the franked part of the distribution flows indirectly to a taxpayer who is a partner in a partnership; and

(b) apart from this subsection, the amount that flows indirectly would be allowable as a deduction from the taxpayer's assessable income of a year of income; and

(c) the taxpayer is of a kind mentioned in any of paragraphs (3)(a) to (d);

the amount that flows indirectly is not allowable as a deduction from that assessable income.

(9) Subsection (8) does not prevent, and is taken never to have prevented, an amount from being allowable as a deduction if the taxpayer's return of income of the year of income is prepared on the basis that the amount is so allowable.

Where trustee assessed on amount flowing indirectly

(10) If:

(a) any of the franked part of the distribution flows indirectly to the trustee of a trust estate; and

(b) apart from this subsection, the trustee would be liable under section 98, 99 or 99A to be assessed and pay tax on the amount that flows indirectly;

the trustee is not liable under that section to be assessed and to pay tax on the amount that flows indirectly.

(11) Subsection (10) does not prevent, and is taken never to have prevented, the trustee from being liable under that section to be assessed and to pay tax on an amount if the trustee elects to be so liable.

(12) An election must be made in the trustee's return of income of the trust estate for the year of income concerned.

Interpretation

(13) In this section:

flows indirectly has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.

part of a distribution that is franked with a venture capital credit has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.