Income Tax Assessment Act 1997
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Hide history noteSECTION 36-55 Converting excess franking offsets into tax loss
Excess franking offsets
36-55(1)
An entity that is a *corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if:
(a) the total amount of *tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210-H (except those that are subject to the refundable tax offset rules because of section 67-25 );
exceeds:
(b) the amount of income tax that the entity would have to pay on its taxable income for that year if:
(i) it did not have those tax offsets; and
(ii) it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and
but had all its other tax offsets.
(iii) it did not have any tax offset under section 205-70 ;
The excess is the amount of excess franking offsets .
Note:
Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules.
Example:
For the 2017-18 income year, Company E (which is not a base rate entity) has:
• assessable income of $200 (franked distribution of $140 and franking credit of $60); and • $100 of deductions that are allowable. The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules.
Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30:
This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year.
How to work out the amount of the tax loss
36-55(2)
For the purposes of this Act, if:
(a) an entity has an amount of *excess franking offsets for an income year; and
(b) the result of applying the following method statement is a positive amount;
then:
(c) the entity is taken to have a *tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36-10 , 165-70 , 175-35 or 701-30 ); and
(d) that year is taken to be a *loss year for the entity if the entity would not otherwise have a tax loss for that year. Method statement
Step 1.
Work out the amount (if any) that would have been the entity
'
s *tax loss for that year under section
36-10
,
165-70
,
175-35
or
701-30
if the entity
'
s *net exempt income for that year (if any) were disregarded.
Note:
See section 36-20 for the calculation of net exempt income.
Step 2.
Divide the amount of *excess franking offsets by the entity ' s *corporate tax rate for imputation purposes for that year.
Step 3.
Add the results of steps 1 and 2.
Step 4.
Reduce the result of step 3 by the entity ' s *net exempt income for that year (if any).
The result of this step is taken to be the entity ' s *tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year.
Example:
Assume that company E did not derive any exempt income for the 2017-2018 income year and that it would not otherwise have any tax loss for that year under section 36-10 , 165-70 , 175-35 or 701-30 .
Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36-15 or 36-17 .
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