Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES

PART 3-6 - THE IMPUTATION SYSTEM

View history reference

View history note

Division 207 - Effect of receiving a franked distribution

View history reference

View history note

Subdivision 207-B - Franked distribution received through certain partnerships and trustees

View history reference

View history note

History

Subdiv 207-B substituted by No 83 of 2004, s 3 and Sch 10 item 7, applicable to events that occur on or after 1 July 2002, subject to the rules on the application of Part 3-6 of the Income Tax Assessment Act 1997 set out in the Income Tax (Transitional Provisions) Act 1997 . Subdiv 207-B formerly read:

Subdivision 207-B - Effect of receiving a franked distribution through certain partnerships and trusts
What this Subdivision is about
207-25
A franked distribution to certain partnerships and trusts is treated as flowing indirectly to members of the partnership or trust.
Each member's share of the franking credit on the distribution is included in that member's assessable income.

Each member is then given a tax offset equal to that share of the franking credit, provided the member is not itself a partnership or trust through which the distribution flows indirectly.

Where the trustee, rather than a member, is the taxpayer on a share of the distribution, it is the trustee in that capacity who is given the tax offset under this Subdivision.

View history note

Hide history note

History

S 207-25 inserted by No 48 of 2002.

Applying this Subdivision
207-30
This Subdivision applies subject to:

(a) Subdivision 207-E; and

(b) Subdivision 207-F.
Note 1: Subdivision 207-D also contains adjustments to deal with cases where a distribution flows indirectly to an entity that is not a resident.

Note 2: Subdivision 207-E sets out cases in which the rules in this Subdivision will not apply because the distribution is exempt income or non-assessable non-exempt income and so would not be taxed in any case. It also replaces the rules in this Subdivision where the distribution flows indirectly to exempt institutions that are eligible for a refund and, in some cases, to eligible entities within the meaning of Part IX of the Income Tax Assessment Act 1936 and to life insurance companies.

Note 3: Subdivision 207-F sets out cases in which the rules in this Subdivision will not apply because the imputation system has been manipulated in a way that is not permitted under income tax law, for example by streaming distributions or dividend stripping.

View history note

Hide history note

History

S 207-30 amended by No 66 of 2003 and inserted by No 48 of 2002.

When a franked distribution flows indirectly to an entity
207-35(1)
This section sets out the only circumstances in which a *franked distribution is taken to flow indirectly to an entity in an income year.
Partners

207-35(2)
The distribution flows indirectly to the entity in the income year if:

(a) the entity is a partner in a *partnership; and

(b) either:

(i) a share of the *net income of the partnership is included in the entity's assessable income for the income year under subsection 92(1) of the Income Tax Assessment Act 1936 ; or

(ii) a share of the *partnership loss of the partnership is allowable as a deduction for the income year to the partner under subsection 92(2) of that Act; and

(c) the whole or a part of that share of the net income or partnership loss of the partnership is attributable to:

(i) an amount included in the assessable income of the partnership because the distribution is made to the partnership; or

(ii) an amount included in the assessable income of the partnership because of the distribution and in circumstances where the distribution flows indirectly to the partnership because of one or more previous applications of this section.

Beneficiaries of trusts

207-35(3)
The distribution flows indirectly to the entity in the income year if:

(a) the entity is a beneficiary of a trust; and

(b) a share of the *net income of the trust is included in the entity's assessable income for the income year under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; and

(c) the whole or a part of that share of the net income of the trust is attributable to:

(i) an amount included in the assessable income of the trust because the distribution is made to the trustee of the trust; or

(ii) an amount included in the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section; or

(iii) an amount allowed as a deduction from the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section.

Trustees liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936

207-35(4)
The distribution flows indirectly to the entity in an income year if:

(a) the entity is a trustee of a trust; and

(b) the entity is:

(i) liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the *net income of the trust for the income year; or

(ii) liable to be assessed under section 99 or 99A of the Income Tax Assessment Act 1936 in respect of the net income, or a part of the net income, of the trust for the income year; and

(c) the whole or a part of the amount on which the entity is liable to be assessed under that section is attributable to:

(i) an amount included in the assessable income of the trust because the distribution is made to the trustee of the trust; or

(ii) an amount included in the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section; or

(iii) an amount allowed as a deduction from the assessable income of the trust because of the distribution and in circumstances where the distribution flows indirectly to the trustee of the trust because of one or more previous applications of this section.

View history note

Hide history note

History

S 207-35 inserted by No 48 of 2002.

Effect on assessable income where distribution flows indirectly
207-40(1)
Where:

(a) a *franked distribution is made to a *partnership; and

(b) the distribution *flows indirectly to a partner in the partnership;
then, for the purpose of working out the net income of the partnership under subsection 90(1) of the Income Tax Assessment Act 1936 , the assessable income of the partnership, for the income year in which the distribution is made, includes an amount equal to the *franking credit on the distribution.

207-40(2)
Where:

(a) a *franked distribution is made to a trustee of a trust; and

(b) the distribution *flows indirectly to a beneficiary or the trustee of the trust;
then, for the purpose of working out the net income of the trust under subsection 95(1) of the Income Tax Assessment Act 1936 , the assessable income of the trustee, for the income year in which the distribution is made, includes an amount equal to the *franking credit on the distribution.

Note 1: An amount included in the assessable income of a partnership under this provision will also affect the assessable income of a partner in the partnership. This is because of Division 5 of Part III of the Income Tax Assessment Act 1936 .

Note 2: An amount included in the assessable income of a trustee under this provision will also affect the assessable income of a beneficiary of the trust, or the amount on which the trustee of the trust is assessed and liable to pay tax. This is because of Division 6 of Part III of that Act.

View history note

Hide history note

History

S 207-40 inserted by No 48 of 2002.

Adjustment of the amount included in the assessable income of an entity because of a distribution that flows indirectly
207-45(1)
Where:

(a) an amount is included in the assessable income of an entity under Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 ; and

(b) the amount is attributable to the *franking credit on a *distribution that *flows indirectly to the entity;
then, despite anything in those Divisions, the amount that is included in the assessable income of the entity is equal to the entity's *share of the franking credit on the distribution.

207-45(2)
Where:

(a) as trustee of a trust, an entity is liable to be assessed on an amount under Division 6 of Part III of the Income Tax Assessment Act 1936 ; and

(b) the amount is attributable to the *franking credit on a *distribution that *flows indirectly to the trustee;
then, despite anything in that Division, the amount on which the entity is assessed and liable to pay tax is equal to the entity's *share of the franking credit on the distribution.

View history note

Hide history note

History

S 207-45 inserted by No 48 of 2002.

Tax offset where distribution flows indirectly
207-50(1)
If:

(a) a *franked distribution *flows indirectly to an entity; and

(b) the entity is one of the following:

(i) an individual;

(ii) a *corporate tax entity;

(iii) a trustee that is liable to be assessed on a share of the *net income of the trust under section 98, 99 or 99A of the Income Tax Assessment Act 1936 ;

(iv) a trustee of an eligible entity within the meaning of Part IX of the Income Tax Assessment Act 1936 (certain superannuation funds, ADFs and PSTs are eligible entities);

the entity is entitled to a *tax offset for the income year in which the distribution is made.

Note: These are the ultimate recipients of the distribution and so the ultimate taxpayers. For this reason, they are given the benefit of having income tax already paid on the profits underlying the distribution acknowledged when they pay income tax.

207-50(2)
The amount of the *tax offset is equal to the entity's *share of the *franking credit on the distribution.
Note: The entity's share of the franking credit, and so the entity's tax offset, may be nil.

View history note

Hide history note

History

S 207-50 inserted by No 48 of 2002.

An entity's share of the franking credit on a franked distribution
207-55(1)
Use the following table to work out an entity's share of the *franking credit on a *franked distribution that *flows indirectly to the entity if:

(a) the distribution is made to a *partnership of which the entity is a partner; or

(b) the distribution is made to the trustee of a trust of which the entity is a beneficiary and a share of the *net income of the trust is included in the entity's assessable income under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; or

(c) the distribution is made to the entity as trustee of a trust and the entity is liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 in respect of the net income, or part of the net income, of the trust.

207-55(2)
Use the following table to work out an entity's share of the *franking credit on a *franked distribution that *flows indirectly to the entity if:

(a) the distribution *flows indirectly to a *partnership of which the entity is a *partner; or

(b) the distribution flows indirectly to the trustee of a trust of which the entity is a beneficiary and a share of the *net income of the trust is included in the entity's assessable income under section 97, 98A or 100 of the Income Tax Assessment Act 1936 ; or

(c) the distribution flows indirectly to the entity as trustee of a trust and the entity is liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 in respect of the net income, or part of the net income, of the trust.
Before working out the entity's share of the franking credit, first work out the partnership's or trust's share of the franking credit, by applying this section to each entity to which the distribution flows indirectly on its way to the partnership or trust, starting with the entity whose share is worked out under subsection (1) and following the flow of the distribution from that entity to the partnership or trust.

Note: Where reference is made in the tables in subsection (1) and (2) to an amount attributable to a distribution, it is a reference to an amount attributable to the cash amount of the distribution.

View history note

Hide history note

History

S 207-55 inserted by No 48 of 2002.

Key concepts

SECTION 207-55 Share of a franked distribution

View history reference

Object of section

207-55(1)
The object of this section is to ensure that:

(a) the amount of a *franked distribution made to a partnership or the trustee of a trust is allocated notionally amongst entities who *derive benefits from that distribution; and

View history reference

(b) that allocation corresponds with the way in which those benefits were derived.

Note:

An entity can derive a benefit from the distribution (and therefore has a share of the distribution) without actually receiving any of the distribution: see subsection (2) of this section and the example at the end of section 207-50 .

207-55(2)
An entity's share of a *franked distribution is an amount notionally allocated to the entity as its share of the distribution, whether or not the entity actually receives any of that distribution.

207-55(3)

View history reference

That amount is equal to the entity's share of the distribution as the focal entity in column 3 of an item of the table.

Note:

An entity's share of the distribution is based on the share of the distribution of each preceding intermediary entity through which the distribution flows, starting from the intermediary entity to whom the distribution is made.

This means that in some cases (see items 2 and 4), more than one item of the table will need to be applied to work out the share of the distribution of an ultimate recipient of the distribution.

*Share* of a franked distribution
Item	Column 1 For this intermediary entity and this focal entity:	Column 2 The intermediary entity's share of the franked distribution is:	Column 3 The focal entity's share of the franked distribution is:
1	a partnership is the *intermediary entity* and a partner in that partnership is the *focal entity* if: (a) a *franked distribution is made to the partnership; and (b) the partner has, in respect of the partnership, an individual interest mentioned in subsection 207-50(2)	the amount of the franked distribution	so much of the franked distribution as is taken into account in working out the amount of that individual interest
2	a partnership is the *intermediary entity* and a partner in that partnership is the *focal entity* if: (a) a franked distribution flows indirectly to the partnership as a beneficiary of a trust; and (b) the partner has, in respect of the partnership, an individual interest mentioned in subsection 207-50(2)	the amount worked out under column 3 of item 3 or 4 of this table where the partnership, as a beneficiary, is the focal entity in that item	so much of the amount worked out under column 2 of this item as is attributable to the partner, having regard to the partnership agreement and any other relevant circumstances
3	the trustee of a trust is the *intermediary entity* and the trustee or a beneficiary of the trust is the *focal entity* if: (a) a *franked distribution is made to the trustee; and (b) the trustee or beneficiary has, in respect of the trust, a share amount mentioned in subsection 207-50(3) or (4)	(a) if the trust has a positive amount of *net income for that year - the amount of the franked distribution; or (b) otherwise - nil	the amount mentioned in subsection (4)
4	the trustee of a trust is the *intermediary entity* and the trustee or a beneficiary of the trust is the *focal entity* if: (a) a franked distribution flows indirectly to the trustee as a partner in a partnership or as a beneficiary of another trust; and (b) the trustee or beneficiary has, in respect of the trust, a share amount mentioned in subsection 207-50(3) or (4)	the amount worked out under column 3 of: (a) item 1 or 2 of this table where the trustee, as a partner, is the focal entity in that item; or (b) item 3 or a previous application of this item where the trustee, as a beneficiary, is the focal entity in that item	so much of the amount worked out under column 2 of this item as is attributable to the focal entity in this item, having regard to the trust deed and any other relevant circumstances

Note:

In item 3 or 4, the trustee of a trust can be both the intermediary entity and the focal entity in the same item.

View history note

207-55(4)

View history reference

For the purposes of column 3 of item 3 of the table in subsection (3), the amount is the sum of:

(a) so much of the amount worked out under column 2 of item 3 of the table in subsection (3) to which:

(i) unless subparagraph (ii) applies - the focal entity is *specifically entitled; or

(ii) if the focal entity is the trustee and has the share amount because of the operation of section 98 of the Income Tax Assessment Act 1936 in respect of a beneficiary (see subparagraph 207-50(4)(b)(i) ) - the beneficiary is specifically entitled; and

(b) if there is an amount of the *franked distribution to which no beneficiary is specifically entitled - that amount multiplied by:

(i) unless subparagraph (ii) applies - the focal entity ' s *adjusted Division 6 percentage of the income of the trust for the relevant income year; or

(ii) if the focal entity is the trustee and has the share amount because of the operation of section 98 of the Income Tax Assessment Act 1936 in respect of a beneficiary (see subparagraph 207-50(4)(b)(i) ) - the beneficiary ' s adjusted Division 6 percentage of the income of the trust for the relevant income year.

View history note

Disclaimer and notice of copyright applicable to materials provided by CCH Australia Limited

CCH Australia Limited ("CCH") believes that all information which it has provided in this site is accurate and reliable, but gives no warranty of accuracy or reliability of such information to the reader or any third party. The information provided by CCH is not legal or professional advice. To the extent permitted by law, no responsibility for damages or loss arising in any way out of or in connection with or incidental to any errors or omissions in any information provided is accepted by CCH or by persons involved in the preparation and provision of the information, whether arising from negligence or otherwise, from the use of or results obtained from information supplied by CCH.

The information provided by CCH includes history notes and other value-added features which are subject to CCH copyright. No CCH material may be copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any way, except that you may download one copy for your personal use only, provided you keep intact all copyright and other proprietary notices. In particular, the reproduction of any part of the information for sale or incorporation in any product intended for sale is prohibited without CCH's prior consent.