Taxation Laws Amendment Act (No. 3) 1992 (98 of 1992)

Part 2   AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1936

Division 4   Amendments relating to pooled development funds Interpretation

11   After section 124ZL

After section 124ZL of the Principal Act the following Division is inserted:

"Division 10E - Shares in PDFs

Treatment of dividends on shares in a PDF

"124ZM.(1) If a company pays a dividend to a shareholder at a time when the company is a PDF, then:

(a) so much (if any) of the dividend as has not been franked in accordance with section 160AQF is exempt from income tax; and

(b) if the whole or a part of the dividend has been so franked - the rest of this section applies.

"(2) If, apart from this subsection, 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 include:

(e) the franked amount; or

(f) a trust amount or partnership amount in relation to which there would be a flow-on franking amount;

the franked amount, or so much of the trust amount or partnership amount as would constitute the flow-on franking amount, as the case may be, is exempt income of the taxpayer.

"(3) Subsection (2) does not exempt, and is 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.

"(4) If, apart from this subsection, a partnership amount in relation to which there would be a flow-on franking amount would be allowable as a deduction from the assessable income of a year of income of a taxpayer of a kind referred to in subsection (2), so much of the partnership amount as would constitute the flow-on franking amount is not allowable as a deduction from that assessable income.

"(5) Subsection (4) 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.

"(6) If, apart from this subsection, a trustee would be liable under section 98, 99 or 99A to be assessed and pay tax on a trust amount or partnership amount in relation to which there would be a flow-on franking amount, the trustee is not liable under that section to be assessed and to pay tax on so much of the trust amount or partnership amount as would constitute the flow-on franking amount.

"(7) Subsection (6) 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.

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

"(9) In this section:

'flow-on franking amount' means:

(a) in relation to a trust amount - so much of the trust amount as is attributable to:

(i) if the franked amount is included in the assessable income of the trust estate - the franked amount; or

(ii) the flow-on franking amount in relation to another trust amount included in the assessable income of the trust estate; or

(iii) the flow-on franking amount in relation to a partnership amount included in, or allowable as a deduction from, the assessable income of the trust estate; and

(b) in relation to a partnership amount - so much of the partnership amount as is attributable to:

(i) if the franked amount is included in the assessable income of the partnership - the franked amount; or

(ii) the flow-on franking amount in relation to a trust amount included in the assessable income of the partnership; 'franked amount' means so much of the dividend as has been franked in accordance with section 160AQF;

'partnership amount' has the same meaning as in Part IIIAA;

'trust amount' has the same meaning as in Part IIIAA.

Exemption of income from sale of shares in a PDF

"124ZN. Income derived by a taxpayer from selling shares in a company is exempt from income tax if the company is a PDF at the time of the sale.

Shares in a PDF are not trading stock

"124ZO. Shares in a PDF are not trading stock for the purposes of this Act.

Part IIIA does not apply to disposal of shares in a PDF

"124ZP. Part IIIA does not apply in respect of a disposal (within the meaning of that Part) of shares in a company if the company is a PDF at the time of the disposal.

Effect of company becoming a PDF

"124ZQ.(1) This section applies to shares in a company that a taxpayer holds when the company becomes a PDF.

"(2) In determining for the purposes of this Act whether an amount is or was allowable as a deduction to the taxpayer in respect of acquiring the shares, the shares are taken to have been shares in a PDF throughout the period beginning immediately before the taxpayer acquired them and ending when the company became a PDF.

"(3) For the purposes of this Act, the shares are taken to have been trading stock of the taxpayer at no time during that period.

"(4) Section 170 does not prevent an assessment from being amended to give effect to this section.

Effect of company ceasing to be a PDF

"124ZR.(1) This section applies to shares in a company that a taxpayer holds when the company ceases to be a PDF.

"(2) For the purposes of this Act (other than Part IIIA), the taxpayer is taken:

(a) to have sold the shares immediately before the company ceased to be a PDF; and

(b) to have rebought the shares immediately after the company so ceased;

for a consideration equal to the market value of the shares immediately after the company so ceased.

"(3) For the purposes of Part IIIA, the taxpayer is taken:

(a) to have disposed of the shares immediately before the company ceased to be a PDF; and

(b) to have re-acquired the shares immediately after the company so ceased;

for a consideration equal to the market value of the shares immediately after the company so ceased.".