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 207-159   Distributions funded by capital raising  

207-159(1)    
This subsection applies to a distribution (the relevant distribution ) of a kind, or a part (the relevant part ) of a distribution (also a relevant distribution ) of a kind, made by an entity if all of the following conditions are satisfied:

(a)    either:

(i) the entity has a practice of making distributions of that kind on a regular basis and the relevant distribution is not made in accordance with that practice; or

(ii) the entity does not have a practice of making distributions of that kind on a regular basis;

(b)    there is an issue of *equity interests in the entity or any other entity (whether before, at or after the time at which the relevant distribution was made);

(c)    it is reasonable to conclude having regard to all relevant circumstances that:

(i) the principal effect of the issue of any of the equity interests was the direct or indirect funding of a substantial part of the relevant distribution or the relevant part; and

(ii) any entity that issued, or facilitated the issue of, any of the equity interests did so for a purpose (other than an incidental purpose) of funding a substantial part of the relevant distribution or the relevant part;

(d)    the issue of the equity interests was not a direct response in order to meet a requirement, direction or recommendation from *APRA or *ASIC.

When an entity has a practice of making distributions of a certain kind on a regular basis

207-159(2)    
In considering whether the condition in paragraph (1)(a) is satisfied, take the following matters into account:

(a)    the nature of distributions made by the entity before the time at which the relevant distribution was made (including the extent to which such distributions were a return on capital);

(b)    the timing of such distributions;

(c)    the amount of such distributions;

(d)    any explanations given by the entity for making such distributions;

(e)    the amount of the *franking credits on, and the *franking percentages for, such distributions;

(f)    any other relevant consideration.

Distributions funded by issuing equity interests are to be disregarded in determining past practice

207-159(3)    
In considering whether the condition in paragraph (1)(a) is satisfied, disregard a distribution if:

(a)    the distribution:

(i) is a *franked distribution; or

(ii) would be a franked distribution if subsection (1) did not apply to it; and

(b)    subsection (1) would apply to all or any part of the distribution if paragraph (1)(a) were omitted.

When issue of equity interests has the effect or purpose of funding all or part of a distribution

207-159(4)    
In considering whether the condition in paragraph (1)(c) is satisfied, take the following matters into account:

(a)    the extent to which the time (or times) at which any of the *equity interests mentioned in that paragraph were issued differs (or differ) from the time at which the relevant distribution was made;

(b)    the extent to which the amount of the funds from the issue of any of those equity interests differs from the amount of the relevant distribution or the relevant part (as the case may be);

(c)    the extent to which the financial position of any of the following entities changed as a result of the relevant distribution (or any part of the relevant distribution) and the issue of any of those equity interests:

(i) the entity that made the relevant distribution;

(ii) an entity that, before, at or after the time at which the relevant distribution was made, was a *connected entity of that entity;

(iii) if the entity in which those equity interests were issued is not the entity that made the relevant distribution - the entity in which those equity interests were issued;

(d)    the use of the funds from the issue of any of those equity interests;

(e)    whether there are any reasons for the issue of any of those equity interests other than the funding of the relevant distribution (or any part of the relevant distribution);

(f)    the extent to which the issue of any of those equity interests was underwritten (whether formally or informally);

(g)    how the history of the amounts of *franking surplus or *franking deficit for the *franking account of the entity that made the relevant distribution compares to:

(i) the history of profits and or loss of that entity; and

(ii) the history of the balance of the share capital account of that entity;

(h)    if the entity that made the relevant distribution is not the entity in which those equity interests were issued - the nature and extent of the relationship between those entities;

(i)    the extent to which:

(i) the entity to which the relevant distribution was made; and

(ii) other entities to which analogous distributions were made;

(iii) other entities to which analogous distributions were not made, but which were entitled to analogous distributions;

are the same as the entities to which those equity interests were issued;

(j)    other distributions (if any) made by the entity that made the relevant distribution (whether before, at or after the time at which the relevant distribution was made);

(k)    any other relevant consideration.