INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIAA - FRANKING OF DIVIDENDS  

Division 2 - Franking surplus or deficit  

Subdivision D - Disposal of subsidiary by exempt company  

SECTION 160AQCNCK   CANCELLATION OF FRANKING SURPLUS, CREDIT OR DEBIT  

160AQCNCK(1)   [Application]  

This section applies if:

(a) at a particular time (the transition time ), all of the income of a company (the exempt company ) is wholly exempt from income tax; and

(b) at the transition time, another company (the former subsidiary ) ceases to be a subsidiary (as defined in section 57-125 of Schedule 2D) of the exempt company; and

(c) immediately before the transition time, the former subsidiary was not itself wholly exempt from income tax; and

(d) immediately before the transition time, all of the income of every company that beneficially owned shares in the former subsidiary was wholly exempt from income tax.

Note:

If the exempt company itself ceases to be wholly exempt from income tax, it and its subsidiaries will be covered by similar rules under Schedule 2D (treatment of tax exempt entities that become taxable).

160AQCNCK(2)   Cancellation of surplus.  

Subject to subsection (4), if, immediately before the transition time, the former subsidiary has a class A franking surplus, a class B franking surplus or a class C franking surplus, then the surplus is reduced to nil at the transition time.

160AQCNCK(3)   Cancellation of credit/debit.  

Subject to subsection (4), if:

(a) at any time after the transition time, there arises a franking credit or a franking debit of the former subsidiary; and

(b) the franking credit or franking debit is to any extent attributable to the period, or to an event taking place, before the transition time;

the franking credit or franking debit is to that extent taken not to have arisen.

160AQCNCK(4)   Cases where subsections (2) and (3) do not apply.  

If:

(a) one or more class A franking debits, class B franking debits or class C franking debits of the former subsidiary arise after the transition time; and

(b) any of the debits is to an extent (the amount of which is the pre-transition time component of the debit) attributable to the period, or to an event taking place, before the transition time; and

(c) immediately before the transition time:

(i) there was a class A franking surplus, class B franking surplus or class C franking surplus of the former subsidiary that was less than the total of the pre-transition time components of all of the debits of that class; or

(ii) there was no class A franking surplus, there was no class B franking surplus or there was no class C franking surplus of the former subsidiary;

then:

(d) in a case covered by subparagraph (c)(i) - subsection (2) does not apply to the surplus or surpluses concerned; and

(e) in any case - subsection (3) does not apply to the debits of the class or classes concerned.

160AQCNCK(5)   States and Territories.  

The reference in paragraph (1)(a) to a company all of whose income is wholly exempt from income tax includes a reference to a State or Territory.