INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIAA - FRANKING OF DIVIDENDS  

Division 7AA - Franking rebates for certain exempt institutions  

SECTION 160ARDAC   FRANKING REBATES DENIED IN CERTAIN CIRCUMSTANCES  

160ARDAC(1)   [Exempt status may not be disregarded]  

The exempt institution's exempt status is not disregarded in relation to a dividend or notional trust amount if subsection (2), (4), (5), (6), (7), (9) or (10) is satisfied. None of those subsections limits any of the others.

160ARDAC(2)   [Related transaction]  

The institution's exempt status is not disregarded if:

(a) there is a related transaction in relation to the dividend or notional trust amount; and

(b) because of the related transaction:

(i) the amount or value of the benefit derived by the institution because of the dividend is, will be, or may reasonably be expected to be, less than the amount or value of the dividend at the time when the dividend was paid; or

(ii) the amount or value of the benefit derived by the institution because of the notional trust amount is, will be, or may reasonably be expected to be, less than the amount or value of the notional trust amount at the time when the notional trust amount arose.

The amount or value of the dividend or notional trust amount is to be increased to include the value of any franking rebate to which the institution would be entitled if this section did not apply to the dividend or notional trust amount.

160ARDAC(3)   [Reasonable expenses]  

Subsection (2) does not apply to the dividend or notional trust amount if:

(a) the only reason why paragraph (2)(b) is satisfied is that the institution has incurred, will incur, or may reasonably be expected to incur, expenses for the purpose of obtaining the dividend or notional trust amount (and the associated franking rebate); and

(b) the expenses are, in the Commissioner's opinion, reasonable in relation to the value of the dividend or notional trust amount.

160ARDAC(4)   [Liabilities]  

Subject to subsection (11), the institution's exempt status is not disregarded if:

(a) there is a related transaction in relation to the dividend or notional trust amount; and

(b) because of the related transaction, the institution or another entity:

(i) makes, becomes liable to make, or may reasonably be expected to make or to become liable to make, a payment to any entity; or

(ii) transfers, becomes liable to transfer, or may reasonably be expected to transfer or to become liable to transfer, any property to any entity; or

(iii) incurs, becomes liable to incur, or may reasonably be expected to incur or to become liable to incur, any other detriment, disadvantage, liability or obligation.

160ARDAC(5)   [Benefit etc obtained]  

Subject to subsection (11), the institution's exempt status is not disregarded if:

(a) there is a related transaction in relation to the dividend or notional trust amount; and

(b) because of the related transaction:

(i) the company that paid the dividend or an associate of that company; or

(ii) the trustee of the trust in relation to which the notional trust amount arises or an associate of that trustee;

has obtained, will obtain or may reasonably be expected to obtain a benefit, advantage, right or privilege.

Note:

Section 160ARDAE makes special provision in relation to benefits provided by an exempt institution to its controller.

160ARDAC(6)   [Property other than money]  

The institution's exempt status is not disregarded in relation to a dividend if:

(a) the dividend to any extent takes the form of property other than money; and

(b) the terms and conditions on which the dividend is paid are such that the institution:

(i) does not receive immediate custody and control of the property; or

(ii) does not have the unconditional right to retain custody and control of the property in perpetuity to the exclusion of the company or an associate of the company; or

(iii) does not obtain an immediate, indefeasible and unencumbered legal and equitable title to the property.

160ARDAC(7)   [Value of payments less than notional trust amounts]  

The institution's exempt status is not disregarded in relation to a notional trust amount that arises in a year of income if the total value of the payments of money, and transfers of property, by the trustee to the institution from the trust that:

(a) occur during the year of income; and

(b) are attributable to notional trust amounts that arose during the year of income;

are less than the total amount of those notional trust amounts.

160ARDAC(8)   [Amount treated as distributed]  

Subsection (7) does not apply to a notional trust amount if the Commissioner is satisfied, having regard to all the circumstances, that it would be reasonable to treat the notional trust amount as having been distributed to the institution during the year of income.

160ARDAC(9)   [Distributions]  

The institution's exempt status is not disregarded in relation to a notional trust amount if:

(a) the trustee of the trust in relation to which the notional trust amount arises makes a distribution to the institution in relation to the notional trust amount; and

(b) the distribution to any extent takes the form of property other than money; and

(c) the terms and conditions on which the distribution is made are such that the institution:

(i) does not receive immediate custody and control of the property; or

(ii) does not have the unconditional right to retain custody and control of the property in perpetuity to the exclusion of the trustee or an associate of the trustee; or

(iii) does not obtain an immediate, indefeasible and unencumbered legal and equitable title to the property.

160ARDAC(10)   [When exempt status not disregarded]  

Subject to subsection (11), the institution's exempt status is not disregarded if:

(a) an arrangement is entered into as part of, or in association with, the payment of the dividend or the arising of the entitlement to, or the distribution of, the notional trust amount; and

(b) because of the arrangement the institution or another entity has acquired or will acquire (whether directly or indirectly) property, other than property comprising the dividend or notional trust amount, from:

(i) the company or an associate of the company; or

(ii) the trustee of the trust in relation to which the notional trust amount arises or an associate of the trustee.

160ARDAC(11)   [Options]  

Subsection (4), (5) or (10) does not apply to the dividend or notional trust amount if:

(a) the institution has the choice of:

(i) receiving payment of the dividend or notional trust amount; or

(ii) being issued with shares in the company that paid the dividend or fixed interests in the trust estate in relation to which the notional trust amount arises; and

(b) the institution is under no obligation (whether express or implied and whether legally enforceable or not) either to choose to take, or to choose not to take, the shares or interests rather than receiving payment of the dividend or notional trust amount; and

(c) the institution chooses to be issued with the shares or fixed interests; and

(d) subsection (4), (5) or (10) would, but for this subsection, apply to the dividend or notional trust amount because the institution makes that choice; and

(e) making that choice furthers the purpose for which the institution was established; and

(f) the institution does not make that choice for the purpose, or purposes that include the purpose, of benefiting:

(i) the company that paid the dividend; or

(ii) the trustee of the trust in relation to which the notional trust amount arises; or

(iii) an associate of that company or trustee (other than the institution); and

(g) any benefit obtained by the company, trustee or associate because the institution makes that choice is an ordinary incident of issuing the shares or interests to the institution or of the institution's holding of those shares or interests; and

(h) the following deal with one another on an arm's length basis in relation to any related transaction or arrangement in relation to the dividend or notional trust amount that, but for this subsection, would have prevented the institution's exempt status from being disregarded in relation to the dividend or notional trust amount:

(i) the institution;

(ii) the company that paid the dividend or the trustee of the trust in relation to which the notional trust amount arises;

(iii) any other entity involved in, connected with or party to the related transaction or arrangement.

Note:

Subparagraph (11)(a)(ii) - for fixed interest see subsections (12) to (15).

160ARDAC(12)   A vested and indefeasible interest constitutes a fixed interest.  

For the purposes of subsection (11), a taxpayer's interest in a trust estate is a fixed interest if it is a vested and indefeasible interest in the corpus of the trust estate.

160ARDAC(13)   Case where interest not defeasible.  

If:

(a) the trust is a unit trust and the taxpayer holds units in the unit trust; and

(b) the units are redeemable or further units are able to be issued; and

(c) where units in the unit trust are listed for quotation in the official list of an approved stock exchange (within the meaning of section 470 ) - the units held by the taxpayer will be redeemed, or any further units will be issued, for the price at which other units of the same kind in the unit trust are offered for sale on the approved stock exchange at the time of the redemption or issue; and

(d) where the units are not listed as mentioned in paragraph (c) - the units held by the taxpayer will be redeemed, or any further units will be issued, for their market value at the time of the redemption or issue;

then the mere fact that the units are redeemable, or that the further units are able to be issued, does not mean that the taxpayer's interest, as a unit holder, in the corpus of the trust estate is defeasible.

160ARDAC(14)   Commissioner may determine an interest to be vested and indefeasible.  

If:

(a) a taxpayer has an interest in the corpus of a trust estate; and

(b) apart from this subsection, the interest would not be a vested or indefeasible interest; and

(c) the Commissioner considers that the interest should be treated as being vested and indefeasible, having regard to:

(i) the circumstances in which the interest is capable of not vesting or the defeasance can happen; and

(ii) the likelihood of the interest not vesting or the defeasance happening; and

(iii) the nature of the trust; and

(iv) any other matter the Commissioner thinks relevant;

the Commissioner may determine that the interest is to be taken to be vested and indefeasible.

160ARDAC(15)   Effect of determination.  

A determination made under subsection (14) has effect according to its terms.