Taxation Laws Amendment Act (No. 2) 1999 (93 of 1999)

Schedule 5 Franking of dividends by exempting companies and former exempting companies

Income Tax Assessment Act 1936

51 After Division 2 of Part IIIAA

Insert:

Division 2A - Exempting companies and former exempting companies

160AQCND Calculation of surplus or deficit

(1) The class A exempting surplus of a former exempting company at a particular time in a franking year is the amount by which the total of the class A exempting credits of the company arising in the franking year and before that time exceeds the total of the class A exempting debits of the company arising in the franking year and before that time.

(2) The class C exempting surplus of a former exempting company at a particular time in a franking year is the amount by which the total of the class C exempting credits of the company arising in the franking year and before that time exceeds the total of the class C exempting debits of the company arising in the franking year and before that time.

(3) The class A exempting deficit of a former exempting company at a particular time in a franking year is the amount by which the total of the class A exempting debits of the company arising in the franking year and before that time exceeds the total of the class A exempting credits of the company arising in the franking year and before that time.

(4) The class C exempting deficit of a former exempting company at a particular time in a franking year is the amount by which the total of the class C exempting debits of the company arising in the franking year and before that time exceeds the total of the class C exempting credits of the company arising in the franking year and before that time.

160AQCNE Payment of exempted dividends by former exempting companies

(1) If, on a particular day, a former exempting company pays a class A exempted dividend, there arises on that day a class A exempting debit of the company equal to the amount that, except for subsection 160AQFA(4), would be the class A exempted amount of the dividend.

(2) If, on a particular day, a former exempting company pays a class C exempted dividend, there arises on that day a class C exempting debit of the company equal to the amount that, except for subsection 160AQFA(4), would be the class C exempted amount of the dividend.

160AQCNF Receipt of exempted dividends by former exempting companies or by exempting companies

(1) Subject to this section, if, on a particular day, a class A exempted dividend is paid to a former exempting company, or to an exempting company, that is a resident at the time the dividend is paid, there arises on that day a class A exempting credit of the former exempting company or a class A franking credit of the exempting company, as the case may be, equal to the class A exempted amount of the dividend.

(2) Subject to this section, if, on a particular day, a class C exempted dividend is paid to a former exempting company, or to an exempting company, that is a resident at the time the dividend is paid, there arises on that day a class C exempting credit of the former exempting company or a class C franking credit of the exempting company, as the case may be, equal to the class C exempted amount of the dividend.

(3) No exempting credit or franking credit arises if the dividend is wholly exempt income of the company.

(4) If a determination is made under paragraph 160AQCBA(3)(b) or 177EA(5)(b) in respect of the dividend, no exempting credit or franking credit arises in respect of the dividend.

(5) If a determination is made under paragraph 177EA(5)(b) in respect of a part of the dividend, the exempting credit or franking credit that would otherwise arise in respect of the dividend is reduced by the same proportion as that part of the dividend bears to the whole of the dividend.

(6) If the dividend is partly exempt income of the company, the exempting credit or franking credit arising under subsection (1) or (2) is reduced by the amount worked out by using the formula:

Credit * (Exempt part of dividend / Dividend)

where:

credit means the exempting credit or franking credit, as the case may be, determined under whichever of subsections (1) and (2) is applicable.

dividend means the number of dollars in the total amount of the dividend.

exempt part of dividend means the number of dollars in the part of the dividend that is exempt income.

(7) In determining for the purposes of subsection (3) or (6) whether the dividend is wholly or partly exempt income of the former exempting company or of the exempting company, section 124ZM (which exempts dividends paid by PDFs) is to be disregarded.

(8) The exempting credit or franking credit arising under subsection (1) or (2) is to be reduced by 80% if:

(a) the former exempting company, or the exempting company, is a life assurance company; and

(b) the assets of the former exempting company, or of the exempting company, from which the dividend was derived were included in insurance funds of the company at any time during the period beginning at the start of the year of income of the company in which the dividend was paid and ending at the time the dividend was paid.

(9) No exempting credit or franking credit arises if the dividend was paid as part of a dividend stripping operation.

160AQCNG Conversion of franking surplus to exempting credit when an exempting company becomes a former exempting company

(1) If:

(a) an exempting company becomes a former exempting company; and

(b) at the time when it becomes a former exempting company it has a class A franking surplus;

then, subject to section 160AQCNI, immediately after it became a former exempting company:

(d) there arises a class A exempting credit of the company equal to the surplus.

(2) If:

(a) an exempting company becomes a former exempting company; and

(b) at the time when it becomes a former exempting company it has a class C franking surplus;

then, subject to section 160AQCNI, immediately after it became a former exempting company:

(d) there arises a class C exempting credit of the company equal to the surplus.

(3) For the purpose of calculating the franking debit referred to in paragraph (1)(c) or (2)(c) and the exempting credit referred to in paragraph (1)(d) or (2)(d), in relation to the company, the franking surplus referred to in paragraph (1)(b) or (2)(b) is taken:

(a) to be increased by so much of any franking credit of the company; and

(b) to be reduced by so much of any franking debit of the company;

that arose during the year of income in which the company became a former exempting company as is not attributable to a period in which, or to an event taking place at a time when, the company was an exempting company or would have been an exempting company if paragraph 160APHBA(a) had not been enacted.

(4) For the purposes of subsection (3), a class C franking credit that arose under section 160ASI is taken to be attributable to a period or time to the extent to which the class A franking credit or class B franking credit because of which the class C franking credit arose was attributable to that period or time.

160AQCNH Conversion of franking deficit to exempting debit when an exempting company becomes a former exempting company

(1) If:

(a) an exempting company becomes a former exempting company; and

(b) at the time when it becomes a former exempting company it has a class A franking deficit;

then, subject to section 160AQCNI, immediately after it became a former exempting company:

(d) there arises a class A exempting debit of the company equal to the deficit.

(2) If:

(a) an exempting company becomes a former exempting company; and

(b) at the time when it becomes a former exempting company it has a class C franking deficit;

then, subject to section 160AQCNI, immediately after it became a former exempting company:

(d) there arises a class C exempting debit of the company equal to the deficit.

(3) For the purpose of calculating the franking credit referred to in paragraph (1)(c) or (2)(c) and the exempting debit referred to in paragraph (1)(d) or (2)(d), in relation to the company, the franking deficit referred to in paragraph (1)(b) or (2)(b) is taken:

(a) to be reduced by so much of any franking credit of the company; and

(b) to be increased by so much of any franking debit of the company;

160AQCNI Transitional provisions for certain exempting companies that become former exempting companies

Conversion of franking surplus or deficit not to apply if change in company's status resulted from contract made before particular time

(1) Subject to subsection (2), sections 160AQCNG, 160AQCNH, 160AQCNM and 160AQCNN do not apply to an exempting company that became a former exempting company as mentioned in the section concerned as a result of an acquisition of shares in the company under a contract that was entered into before 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997.

Exception where contract made for purpose of obtaining franking credits

(2) Subsection (1) does not apply if the contract was entered into for a purpose (whether or not the purpose was the dominant purpose but not including an incidental purpose) of obtaining a franking credit benefit within the meaning of subsection 177EA(18).

Former exempting company reverts to that status within 12 months after becoming an exempting company

(3) If:

(a) a former exempting company becomes an exempting company; and

(b) within a period of less than 12 months afterwards it again becomes a former exempting company;

whichever of the following subsections is applicable has effect.

Exempting company has franking surplus

(4) If, at the time when the company again became a former exempting company, it had a class A franking surplus or a class C franking surplus, the references in paragraphs 160AQCNG(1)(c) or (d) or (2)(c) or (d), as the case may be, to the surplus are taken to be references to only so much of the surplus as would have been the company's class A exempting surplus or class C exempting surplus, as the case may be, if the company had remained a former exempting company throughout that period.

Exempting company has franking deficit

(5) If, at the time when the company again became a former exempting company, it had a class A franking deficit or a class C franking deficit, the references in paragraphs 160AQCNH(1)(c) or (d) or (2)(c) or (d), as the case may be, to the deficit are taken to be references to only so much of the deficit as would have been the company's class A exempting deficit or class C exempting deficit, as the case may be, if the company had remained a former exempting company throughout that period.

160AQCNJ Exempting debits may arise when certain former exempting companies pay frankable dividends

(1) If a former exempting company pays a frankable dividend in respect of which there is a class A required franking amount and:

(a) the reckoning day of the dividend is before the day on which the company became a former exempting company; or

(b) subsection 160AQE(3) or (4) applies in relation to the dividend;

then, subject to subsection (3), there arises a class A exempting debit of the company equal to the amount (if any) by which the class A required franking amount of the dividend exceeds the actual franked amount of the dividend.

(2) If a former exempting company pays a frankable dividend in respect of which there is a class C required franking amount and:

(a) the reckoning day of the dividend is before the day on which the company became a former exempting company; or

(b) subsection 160AQE(3) or (4) applies in relation to the dividend;

then, subject to subsection (3), there arises a class C exempting debit of the company equal to the amount (if any) by which the class C required franking amount of the dividend exceeds the actual franked amount of the dividend.

(3) If:

(a) a class A exempting debit, or a class C exempting debit, of a company arises under subsection (1) or (2) in respect of a dividend paid by the company; and

(b) a class A exempting debit, or a class C exempting debit, of the company arises under subsection 160AQCNE(1) or (2) in respect of the dividend;

the amount of the debit that, apart from this subsection, would arise under subsection (1) or (2) is reduced by the amount of the debit that arises under subsection 160AQCNE(1) or (2).

(4) When a class A exempting debit of a company arises, or, apart from subsection (3), would arise, under subsection (1), or a class C exempting debit of a company arises, or, apart from subsection (3), would arise, under subsection (2), in respect of the payment of a dividend, the dividend is taken for the purposes of section 160APX to have been class A franked or class C franked, as the case may be, to the extent of the amount worked out by using the formula:

Dividend * Notional percentage

(5) For the purposes of subsection (4), the notional percentage is the percentage worked out by using the formula:

(Franking debit + Exempting debit / Dividend) * 100

(6) In the formulas in subsections (4) and (5):

dividend means the amount of the dividend.

exempting debit means the amount of the class A exempting debit or class C exempting debit that, apart from subsection (3), would arise in respect of the dividend under subsection (1) or (2).

franking debit means the amount (if any) of the class A franking debit or class C franking debit arising in respect of the dividend under section 160AQB.

160AQCNK Conversion of exempting surplus to franking credit when former exempting company becomes an exempting company

(1) If:

(a) a former exempting company becomes an exempting company; and

(b) at the time when it becomes an exempting company it has a class A exempting surplus;

then, immediately after it becomes an exempting company:

(d) there arises a class A franking credit of the company equal to the surplus.

(2) If:

(a) a former exempting company becomes an exempting company; and

(b) at the time when it becomes an exempting company it has a class C exempting surplus;

then, immediately after it becomes an exempting company:

(d) there arises a class C franking credit of the company equal to the surplus.

160AQCNL Conversion of exempting deficit to franking debit when former exempting company becomes an exempting company

(1) If:

(a) a former exempting company becomes an exempting company; and

(b) at the time when it becomes an exempting company it has a class A exempting deficit;

then, immediately after it becomes an exempting company:

(d) there arises a class A franking debit of the company equal to the deficit.

(2) If:

(a) a former exempting company becomes an exempting company; and

(b) at the time when it becomes an exempting company it has a class C exempting deficit;

then, immediately after it becomes an exempting company:

(d) there arises a class C franking debit of the company equal to the deficit.

160AQCNM Conversion of certain franking credits of former exempting company to exempting credits

(1) If, apart from this section, a franking credit of a former exempting company would have arisen under any of sections 160APM, 160APMAA, 160APMAB, 160APMD, 160APQA, 160APQB, 160APU to 160APVH and 160ASI, the following provisions of this section have effect.

(2) If the franking credit is wholly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:

(a) the franking credit is taken not to arise; and

(b) an exempting credit of the company equal to the amount of the franking credit is taken to arise.

(3) If the franking credit is partly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:

(a) the franking credit is, to the extent to which it is so attributable, taken not to arise; and

(b) an exempting credit of the company equal to the amount of the franking credit, to the extent to which it is so attributable, is taken to arise.

(4) A reference in subsection (2) or (3) to a period during which, or to a time when, a company was an exempting company includes a reference to a period during which, or to a time when, a company would have been an exempting company if paragraph 160APHBA(1)(a) had not been enacted.

(5) For the purposes of subsection (2) or (3), a class C franking credit that arises under section 160ASI is taken to be attributable to a period or time to the extent to which the class A franking credit or class B franking credit because of which the class C franking credit arose was attributable to that period or time.

160AQCNN Conversion of certain franking debits of former exempting company to exempting debits

(1) If, apart from this section, a franking debit of a former exempting company would have arisen under section 160APY, 160APYA, 160APYBA, 160APYBB, 160APYC, 160APZ, 160AQC, 160AQCB, 160AQCBA, 160AQCCA to 160AQCN and 160ASI, the following provisions of this section have effect.

(2) If the franking debit is wholly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:

(a) the franking debit is taken not to arise; and

(b) an exempting debit of the company equal to the amount of the franking debit is taken to arise.

(3) If the franking debit is partly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:

(a) the franking debit is, to the extent to which it is so attributable, taken not to arise; and

(b) an exempting debit of the company equal to the amount of the franking debit, to the extent to which it is so attributable, is taken to arise.

(5) For the purposes of subsection (2) or (3), a class C franking debit that arises under section 160ASI is taken to be attributable to a period or time to the extent to which the class A franking debit or class B franking debit because of which the class C franking debit arose was attributable to that period or time.

160AQCNO Conversion of exempting deficit to franking debit

(1) If, apart from this subsection, a former exempting company would have a class A exempting deficit at the end of a franking year, then, immediately before the end of that franking year:

(a) there is taken to have arisen a class A exempting credit of the company equal to the deficit; and

(b) there is taken to have arisen a class A franking debit of the company equal to the deficit.

(2) If, apart from this subsection, a former exempting company would have a class C exempting deficit at the end of a franking year, then, immediately before the end of that franking year:

(a) there is taken to have arisen a class C exempting credit of the company equal to the deficit; and

(b) there is taken to have arisen a class C franking debit of the company equal to the deficit.

160AQCNP Treasurer may convert exempting surplus to franking credit of former exempting company previously owned by the Commonwealth

Application

(1) This section applies if:

(a) at a particular time, whether before or after the commencement of this section, a company was or is an exempting company; and

(b) at that time all the shares in the company were or are owned by the Commonwealth; and

(d) the Treasurer is satisfied, having regard to the matters mentioned in subsection (2), that it is desirable to make a declaration or declarations under this section in relation to the company.

Matters to be taken into account

(2) The matters to which the Treasurer is to have regard under paragraph (1)(d) are:

(a) whether the making of the declaration or declarations is necessary to enable the company to pay fully franked dividends after the sale; and

(b) the extent to which the success of the sale or proposed sale depended or will depend upon the ability of the company to pay franked dividends; and

(c) the extent to which the reduction in receipts of income tax resulting from the making of the declaration or declarations would be offset by the receipt of increased proceeds from the sale; and

(d) any other matters that the Treasurer thinks relevant.

When declarations may be made

(3) The following provisions of this section apply after the company became or becomes a former exempting company.

Conversion of class A exempting surplus

(4) If the former exempting company would, apart from this section, have a class A exempting surplus at the end of a franking year, the Treasurer may, in writing, declare that:

(a) a class A exempting debit of the company (not exceeding the class A exempting surplus) specified in the declaration is taken to have arisen immediately before the end of that franking year; and

(b) a class A franking credit of the company equal to the amount of the debit is taken to have arisen immediately before the end of that franking year.

Conversion of class C exempting surplus

(5) If the former exempting company would, apart from this section, have a class C exempting surplus at the end of a franking year, the Treasurer may, in writing, declare that:

(a) a class C exempting debit of the company (not exceeding the class C exempting surplus) specified in the declaration is taken to have arisen immediately before the end of that franking year; and

(b) a class C franking credit of the company equal to the amount of the debit is taken to have arisen immediately before the end of that franking year.

Declarations may be conditional

(6) A declaration may be expressed to be subject to compliance by the former exempting company with such conditions as are specified in the declaration.

Effect of breach of condition

(7) If a condition specified in a declaration is not complied with, the Treasurer may revoke the declaration and, if he or she thinks appropriate, make a further declaration under subsection (4) or (5), as the case requires.

Effect of declaration

(8) A declaration, unless it is revoked, has effect according to its terms.

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