Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 197 - Tainted share capital accounts  

Subdivision 197-C - Consequence of transfer: tainting of share capital account  

SECTION 197-60   Choosing to untaint - liability to untainting tax  

Definitions

197-60(1)    
For the purpose of this section:

(a) a company whose *share capital account is *tainted is a company with only lower tax members in relation to the tainting period if, throughout the tainting period, all *members of the company were covered by one, or a combination of 2 or more, of the following subparagraphs:

(i) other companies;

(ii) *complying superannuation entities;

(iii) foreign residents; and

(b) a company whose share capital account is tainted is a company with higher tax members in relation to the tainting period if it is not a company with only lower tax members in relation to the tainting period.

For this purpose, the tainting period is the period beginning when the share capital account most recently became tainted and ending when the company chooses to untaint the account.

Liability to untainting tax

197-60(2)    
A company that chooses to untaint its *share capital account is liable to pay tax, known as untainting tax , equal to the amount calculated in accordance with the formula:

where:

applicable tax amount
has the meaning given by subsection (3).

section 197-45 franking debits
means the total *franking debits arising under section 197-45 because of the transfer of the amounts that made up the *tainting amount at the time of the choice.

section 197-65 franking debits
means the total (if any) *franking debits arising under section 197-65 because of the choice to untaint.

Note:

The payment of untainting tax does not give rise to a franking credit.

197-60(3)    

In subsection (2), the applicable tax amount is the amount calculated in accordance with the formula:

where:

applicable tax rate
means:

(a) for a company with only lower tax members in relation to the tainting period - the company ' s *corporate tax rate for imputation purposes for the income year in which the choice is made; or

(b) for a company with higher tax members in relation to the tainting period - the sum of:

(i) the maximum rate specified in column 2 of the table in Part 1 of Schedule 7 to the Income Tax Rates Act 1986 that applies for the income year in which the choice is made; and

(ii) 3%.

Note:

The 3% referred to in subparagraph (b)(ii) relates to rates of Medicare levy and surcharge.

notional franking amount
has the meaning given by subsection (4).

197-60(4)    

In subsection (3), the notional franking amount is the amount calculated in accordance with the formula:

	*Tainting amount at time of choice to untaint	×	1
			Applicable gross-up rate

where:

applicable gross-up rate
means the company ' s *corporate tax gross-up rate for the income year in which the choice is made.

Temporary budget repair levy

197-60(5)    
If the income year in which the choice is made corresponds to a temporary budget repair levy year (within the meaning of section 4-11 of the Income Tax (Transitional Provisions) Act 1997 ), increase the applicable tax rate calculated under subsection (3) by 2 percentage points.