Taxation Laws Amendment Act (No. 3) 1998 (47 of 1998)

Schedule 7   Franking of dividends and other distributions

Part 1   Income Tax Assessment Act 1936 (streaming of dividends or other benefits)

5   After section 160AQCB

Insert:

160AQCBA Further provisions relating to dividend streaming

Definitions

(1) In this section, unless the contrary intention appears:

advantaged shareholders has the meaning given by subsection (2).

franking credit benefit has the meaning given by subsection (16).

giving a benefit to a shareholder has a meaning affected by subsection (15).

greater benefit from franking credits has a meaning affected by subsection (17).

Application of section

(2) This section applies in respect of a company that, whether in the same franking year or in different franking years, streams the payment of dividends, or the payment of dividends and the giving of other benefits, to its shareholders in such a way that:

(a) franking credit benefits are, or apart from this section would be, received by shareholders ( advantaged shareholders ) who would, in the year of income in which the dividends are paid, derive a greater benefit from franking credits than other shareholders; and

(b) the other shareholders ( disadvantaged shareholders ) will receive lesser franking credit benefits or will not receive any franking credit benefits, whether or not they receive any other benefits.

Commissioner to determine franking debit or deny franking credit

(3) The Commissioner may make, in writing, either of the following determinations:

(a) a determination that a franking debit of the company arises in respect of each dividend or other benefit paid or given to a disadvantaged shareholder;

(b) a determination that no franking credit benefit is to arise in respect of any dividend paid to an advantaged shareholder.

A determination does not form part of an assessment.

Notice of determination

(4) If the Commissioner makes a determination under subsection (3), the Commissioner must:

(a) in respect of a determination made under paragraph (3)(a) - serve notice in writing of the determination on the company; or

(b) in respect of a determination made under paragraph (3)(b) - serve notice in writing of the determination on the advantaged shareholder.

The notice may be included in a notice of assessment.

Publication in national newspaper of determination in relation to listed public company denying franking credit benefit

(5) If the Commissioner makes a determination under paragraph (3)(b), in respect of a dividend paid by a listed public company within the meaning of the Income Tax Assessment Act 1997, the Commissioner is taken to have served notice in writing of the determination on the advantaged shareholder if the Commissioner causes the notice to be published in a daily newspaper that circulates generally in each State, the Australian Capital Territory and the Northern Territory. The notice is taken to have been served on the day on which the publication takes place.

Evidence of determination

(6) The production of:

(a) a notice of a determination; or

(b) a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of a determination;

is conclusive evidence of:

(c) the due making of the determination; and

(d) except in proceedings under Part IVC of the Taxation Administration Act 1953 on an appeal or review relating to the determination, that the determination is correct.

Objections

(7) If a taxpayer to whom a determination relates is dissatisfied with the determination, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

Effect of determination of franking debit

(8) If the Commissioner makes a determination under paragraph (3)(a):

(a) on the day on which notice of the determination is served in writing on the company, a franking debit of the company arises in respect of the dividend or other benefit; and

(b) the amount of the franking debit is worked out in accordance with subsections (9) to (13).

Franking debit in respect of partly franked dividend

(9) In the case of a franking debit in respect of a partly franked dividend, the amount of the franking debit is the difference between the franked amount and the amount that would have been the franked amount if the dividend had been franked to the maximum extent to which the dividends paid to the advantaged shareholders were franked.

Franking debit in respect of unfranked dividend

(10) In the case of a franking debit in respect of an unfranked dividend, the amount of the franking debit is the amount that would have been the franked amount if the dividend had been franked to the maximum extent to which the dividends paid to the advantaged shareholders were franked.

Franking debit in respect of bonus shares from share premium account

(11) In the case of a franking debit in respect of a benefit by way of the issue of bonus shares from a share premium account, the amount of the franking debit is the amount that, if the company had paid a dividend of an amount equal to the amount debited to the share premium account in respect of the bonus shares and had franked the dividend to the maximum extent to which the dividends paid to the advantaged shareholders were franked, would have been the franked amount of the dividend.

Franking debit in respect of any other benefit

(12) In the case of a franking debit in respect of any other benefit, the amount of the franking debit is the amount that, if the company had paid a dividend of an amount equal to the value of the benefit at the time when it was paid and had franked the dividend to the maximum extent to which the dividends paid to the advantaged shareholders were franked, would have been the franked amount of the dividend.

Franking debit to be reduced by any franking debit under section 160AQCB

(13) If:

(a) a franking debit of the company arises under paragraph (8)(a) in respect of a dividend or other benefit; and

(b) a franking debit of the company arises under section 160AQCB in respect of the same dividend or other benefit;

the amount of the franking debit arising under paragraph (8)(a) is reduced by the amount of the franking debit arising under section 160AQCB.

Effect of determination that no franking credit benefit is to arise

(14) If the Commissioner makes a determination under paragraph (3)(b), the determination has effect according to its terms.

Meaning of giving a benefit to a shareholder

(15) A reference to giving a benefit to a shareholder in a company includes, but is not limited to, a reference to any of the following:

(a) the issue to the shareholder of bonus shares in the company;

(b) the return to the shareholder of capital paid on shares in the company;

(c) the forgiveness of a debt owed by the shareholder to the company;

(d) the making of a payment of any kind, or the giving of any property, to the shareholder or to another person on the shareholder's behalf, whether the payment is made or the property is given by the company or another person.

Where franking credit benefit is received

(16) A shareholder receives a franking credit benefit if:

(a) the shareholder is a company and:

(i) a franking credit of the company arises under section 160APP; or

(ii) the company is entitled to a rebate under section 46 or 46A in respect of a franked dividend or a part of a franked dividend and would not be so entitled if the dividend were an unfranked dividend; or

(b) the shareholder is a trustee or a partnership and an amount is included in the shareholder's assessable income because of the operation of section 160AQT; or

(c) the shareholder is entitled to a rebate of tax under section 160AQU or 160AQY; or

(d) the shareholder is not liable to pay tax under section 128B on a dividend or a part of a dividend because of the operation of paragraph 128B(3)(ga).

Meaning of greater benefit from franking credits

(17) The circumstances in which a shareholder would, in a year of income, derive a greater benefit from franking credits than another shareholder include, but are not limited to, any of the following circumstances existing in relation to the other shareholder and not in relation to the first shareholder:

(a) the shareholder is a non-resident;

(b) the amount of tax (if any) that, apart from this Part, would be payable by the shareholder is less than the amount of the rebate of tax to which the shareholder would be entitled under section 160AQU or 160AQY;

(c) the shareholder is a company that is unable to pay a dividend to its shareholders in the year of income because it has not made any profits or has not made sufficient profits to do so;

(d) the shareholder is a company for which no franking credits arise.