Commonwealth Consolidated Acts Commonwealth Consolidated ActsWhen does the tax offset arise?
(1) A * corporate tax entity is entitled to a * tax offset for an income year for which it satisfies the * residency requirement (the relevant year ) if at least one of the following applies:
(a) the entity has incurred a liability to pay * franking deficit tax in the relevant year;
(b) the entity incurred such a liability in a previous income year for which it did not satisfy the residency requirement, and that liability has not been taken into account in working out a tax offset under this section;
(c) when the entity was last entitled to a tax offset under this section for a previous income year, some of the offset remained after applying section 63 - 10 (tax offset priority rules).
The amount of the tax offset
(2) Work out the amount of the * tax offset for the relevant year as follows:
Method statement
Step 1. Work out the total amount of * franking deficit tax that is covered by paragraph (1)(a).
Then, subject to subsections (5) and (6), reduce so much of it as is attributable to * franking debits to which subsection (8) applies by 30% if that part exceeds 10% of the total amount of * franking credits that arose in the entity's * franking account for the relevant year.
Step 2. Work out the total amount of * franking deficit tax that is covered by paragraph (1)(b) for a previous income year.
Then, subject to subsections (5) and (6), reduce so much of it as is attributable to * franking debits to which subsection (8) applies by 30% if that part exceeds 10% of the total amount of * franking credits that arose in the entity's * franking account for that previous income year.
Step 3. Add up the results of step 2 for all the previous income years covered by paragraph (1)(b).
Step 4. Work out the remaining amount of a * tax offset covered by paragraph (1)(c).
Step 5. Add up the results of steps 1, 3 and 4. The result is the * tax offset to which the entity is entitled under this section for the relevant year.
Note: This method statement is modified for certain late balancing entities: see section 205 - 70 of the Income Tax (Transitional Provisions) Act 1997 .
Example: The following apply to a corporate tax entity that satisfies the residency requirement for an income year:
• the entity's income tax liability for that year would be $100,000 if its tax offsets were disregarded;
• for that year, the entity has a tax offset of $60,000 under this section (the franking deficit offset ) and a tax offset of $80,000 in respect of foreign income tax paid by the entity (the foreign income tax offset ).
Under section 63 - 10 (about tax offset priority rules), the foreign income tax offset must be applied before the franking deficit offset is applied. As a result, that offset and $20,000 of the franking deficit offset combine to reduce the entity's income tax liability to nil. The remaining $40,000 of the franking deficit offset will be included in a franking deficit offset for the next income year for which the entity satisfies the residency requirement.
(4) To determine whether the entity satisfies the * residency requirement for the relevant year, section 205 - 25 has effect as if each of the following were an event specified in a relevant table for the purposes of that section:
(a) the entity incurring a liability to pay * franking deficit tax in the relevant year;
(b) the assessment of the entity's * income tax liability for the relevant year that is made on the * assessment day for that year.
30% reduction will generally not apply to private company's first year of tax liability
(5) The 30% reductions in steps 1 and 2 of the method statement in subsection (2) do not apply in working out the amount of the * tax offset to which the entity is entitled for the relevant year if:
(a) the entity is a * private company for the relevant year; and
(b) if the company did not have the tax offset (but had all its other tax offsets) it would have had an * income tax liability for the relevant year; and
(c) the company has not had an income tax liability for any income year before the relevant year; and
(d) the amount of the liability referred to in paragraph (b) is at least 90% of the amount of the * deficit in the company's * franking account at the end of the relevant year.
Commissioner's discretion
(6) The 30% reductions in steps 1 and 2 of the method statement in subsection (2) do not apply in working out the amount of the * tax offset to which the entity is entitled for the relevant year if the Commissioner determines in writing, on application by the entity in the * approved form, that the excess referred to in those steps was due to events outside the control of the entity.
(7) A determination under subsection (6) is not a legislative instrument.
Applicable franking debits
(8) This subsection applies to * franking debits in the * franking account of an entity:
(a) that arise under table item 1, 3, 5 or 6 in section 205 - 30 for an income year; and
(b) if the entity has franking debits covered by paragraph (a) for that income year--that arise under table item 2 in that section for that income year.
Table of Subdivisions
Guide to Division 207
207 - A Effect of receiving a franked distribution generally
207 - B Franked distribution received through certain partnerships and trustees
207 - C Residency requirements for the general rule
207 - D No gross - up or tax offset where distribution would not be taxed
207 - E Exceptions to the rules in Subdivision 207 - D
207 - F No gross - up or tax offset where the imputation system has been manipulated
Table of sections
207 - 5 Overview