Income Tax Assessment Act 1997
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Hide history noteWhen does the tax offset arise?
205-70(1)
A *corporate tax entity is entitled to a *tax offset for an income year for which it satisfies the *residency requirement (the relevant year ) if at least one of the following applies:
(a) the entity has incurred a liability to pay *franking deficit tax in the relevant year;
(b) the entity incurred such a liability in a previous income year for which it did not satisfy the residency requirement, and that liability has not been taken into account in working out a tax offset under this section;
(c) when the entity was last entitled to a tax offset under this section for a previous income year, some of the offset remained after applying section 63-10 (tax offset priority rules).
The amount of the tax offset
205-70(2)
Work out the amount of the *tax offset for the relevant year as follows: Method statement
Step 1.
Work out the total amount of *franking deficit tax that is covered by paragraph (1)(a).
Then, subject to subsections (5) and (6), reduce so much of it as is attributable to *franking debits to which subsection (8) applies by 30% if that part exceeds 10% of the total amount of *franking credits that arose in the entity ' s *franking account for the relevant year.
Step 2.
Work out the total amount of *franking deficit tax that is covered by paragraph (1)(b) for a previous income year.
Then, subject to subsections (5) and (6), reduce so much of it as is attributable to *franking debits to which subsection (8) applies by 30% if that part exceeds 10% of the total amount of *franking credits that arose in the entity ' s *franking account for that previous income year.
Step 3.
Add up the results of step 2 for all the previous income years covered by paragraph (1)(b).
Step 4.
Work out the remaining amount of a *tax offset covered by paragraph (1)(c).
Step 5.
Add up the results of steps 1, 3 and 4. The result is the *tax offset to which the entity is entitled under this section for the relevant year.
Note:
This method statement is modified for certain late balancing entities: see section 205-70 of the Income Tax (Transitional Provisions) Act 1997 .
Example:
The following apply to a corporate tax entity that satisfies the residency requirement for an income year:
• the entity ' s income tax liability for that year would be $100,000 if its tax offsets were disregarded; • for that year, the entity has a tax offset of $60,000 under this section (the franking deficit offset ) and a tax offset of $80,000 in respect of foreign income tax paid by the entity (the foreign income tax offset ). Under section 63-10 (about tax offset priority rules), the foreign income tax offset must be applied before the franking deficit offset is applied. As a result, that offset and $20,000 of the franking deficit offset combine to reduce the entity ' s income tax liability to nil. The remaining $40,000 of the franking deficit offset will be included in a franking deficit offset for the next income year for which the entity satisfies the residency requirement.
205-70(3)
(Repealed by No 58 of 2006)
Residency requirement
205-70(4)
To determine whether the entity satisfies the *residency requirement for the relevant year, section 205-25 has effect as if each of the following were an event specified in a relevant table for the purposes of that section:
(a) the entity incurring a liability to pay *franking deficit tax in the relevant year;
(b) the assessment of the entity ' s *income tax liability for the relevant year that is made on the *assessment day for that year.
30% reduction will generally not apply to private company ' s first year of tax liability
205-70(5)
The 30% reductions in steps 1 and 2 of the method statement in subsection (2) do not apply in working out the amount of the *tax offset to which the entity is entitled for the relevant year if:
(a) the entity is a *private company for the relevant year; and
(b) if the company did not have the tax offset (but had all its other tax offsets) it would have had an *income tax liability for the relevant year; and
(c) the company has not had an income tax liability for any income year before the relevant year; and
(d) the amount of the liability referred to in paragraph (b) is at least 90% of the amount of the *deficit in the company ' s *franking account at the end of the relevant year.
Commissioner ' s discretion
205-70(6)
The 30% reductions in steps 1 and 2 of the method statement in subsection (2) do not apply in working out the amount of the *tax offset to which the entity is entitled for the relevant year if the Commissioner determines in writing, on application by the entity in the *approved form, that the excess referred to in those steps was due to events outside the control of the entity.
205-70(7)
A determination under subsection (6) is not a legislative instrument.
Applicable franking debits
205-70(8)
This subsection applies to *franking debits in the *franking account of an entity:
(a) that arise under table item 1, 3, 5 or 6 in section 205-30 for an income year; and
(b) if the entity has franking debits covered by paragraph (a) for that income year - that arise under table item 2 in that section for that income year.
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