Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 208 - Exempting entities and former exempting entities  

SECTION 208-5   What is an exempting entity?  

208-5(1)    

An exempting entity is a corporate tax entity that is effectively owned by entities that, either because they are not Australian residents or because they receive distributions as exempt income or non-assessable non-exempt income, would not be able to fully utilise franking credits on distributions by the corporate tax entity.

208-5(2)    
In deciding whether a corporate tax entity is effectively owned by such entities, these rules:

(a) look at the membership interests in the entity that involve the holder of the interest in bearing the risks and accruing the opportunities of ownership of the entity; and

(b) ask whether at least 95% of those membership interests, and 95% of any interests in those membership interests, are held by Australian residents or entities that receive distributions as exempt income or non-assessable non-exempt income.