Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 207 - Effect of receiving a franked distribution  

Subdivision 207-F - No gross-up or tax offset where the imputation system has been manipulated  

Operative provisions

SECTION 207-157   Distribution washing  

207-157(1)    
This section applies to a *franked distribution received by a *member of a *corporate tax entity on a *membership interest (the washed interest ) if:

(a) the washed interest was acquired after the member, or a *connected entity of the member, disposed of a substantially identical membership interest; and

(b) a corresponding franked distribution is made to the member, or the connected entity, on the substantially identical interest.

Further requirement for connected entities

207-157(2)    
However, if the entity that disposed of the substantially identical interest was a *connected entity of the member, this section does not apply to the *franked distribution unless:

(a) it would be concluded that the disposal took place wholly or partly because there was an expectation that the acquisition would, or would be likely to, take place; or

(b) it would be concluded that the acquisition took place wholly or partly because there was a belief that the disposal had taken place.

Substantially identical interests

207-157(3)    
Without limiting paragraph (1)(a), for the purpose of that paragraph a *membership interest is substantially identical to the washed interest if it is any one or more of the following:

(a) fungible with, or economically equivalent to, the washed interest;

(b) a membership interest in the same *corporate tax entity as the washed interest and of a class that is the same as, or not materially different from, the washed interest;

(c) a membership interest in the same corporate tax entity as the washed interest and of a class that is exchangeable at a fixed rate for an interest of the same class as the washed interest;

(d) a membership interest in another corporate tax entity that holds predominantly membership interests that are covered by any of the preceding paragraphs;

(e) a membership interest in another corporate tax entity that is exchangeable at a fixed rate for interests that are covered by any one or more of paragraphs (a) to (c).

Exception for individuals who are small holders

207-157(4)    
Despite subsection (1), this section does not apply to a *franked distribution made to an individual in an income year if the sum of the *tax offsets to which the individual would be entitled, worked out on the basis mentioned in subsection (5), is $5000 or less.

207-157(5)    
Work out the sum of the *tax offsets:

(a) disregarding this Subdivision, to the extent it applies to the individual; and

(b) not disregarding this Subdivision, to the extent it applies to any other entity through which a *franked distribution *flows indirectly to the individual.