Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) In this section, unless the contrary intention appears:
"relevant circumstances" has a meaning affected by subsection (17).
"relevant taxpayer" has the meaning given by subsection (3).
"scheme for a disposition" , in relation to membership interests or an interest in membership interests, has a meaning affected by subsection (14).
(2) An expression used in this section that is defined in the Income Tax Assessment Act 1997 has the same meaning as in that Act, except to the extent that its meaning is extended by subsection (16), (18) or (19), or affected by subsection (15).
Application of section
(3) This section applies if:
(a) there is a scheme for a disposition of membership interests, or an interest in membership interests, in a corporate tax entity; and
(b) either:
(i) a frankable distribution has been paid, or is payable or expected to be payable, to a person in respect of the membership interests; or
(ii) a frankable distribution has flowed indirectly, or flows indirectly or is expected to flow indirectly, to a person in respect of the interest in membership interests, as the case may be; and
(c) the distribution was, or is expected to be, a franked distribution or a distribution franked with an exempting credit; and
(d) except for this section, the person (the relevant taxpayer ) would receive, or could reasonably be expected to receive, imputation benefits as a result of the distribution; and
(e) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain an imputation benefit.
Bare acquisition of membership interests or interest in membership interests
(4) It is not to be concluded for the purposes of paragraph (3)(e) that a person entered into or carried out a scheme for a purpose mentioned in that paragraph merely because the person acquired membership interests, or an interest in membership interests, in the entity.
Commissioner to determine franking debit or deny franking credit
(5) The Commissioner may make, in writing, either of the following determinations:
(a) if the corporate tax entity is a party to the scheme, a determination that a franking debit or exempting debit of the entity arises in respect of each distribution made to the relevant taxpayer or that flows indirectly to the relevant taxpayer;
(b) a determination that no imputation benefit is to arise in respect of a distribution or a specified part of a distribution that is made, or that flows indirectly, to the relevant taxpayer.
A determination does not form part of an assessment.
Notice of determination
(6) If the Commissioner makes a determination under subsection (5), the Commissioner must:
(a) in respect of a determination made under paragraph (5)(a)--serve notice in writing of the determination on the corporate tax entity; or
(b) in respect of a determination made under paragraph (5)(b)--serve notice in writing of the determination on the relevant taxpayer.
Publication of determination in relation to listed public company denying imputation benefit
(7) If the Commissioner makes a determination under paragraph (5)(b), in respect of a distribution made by a listed public company, the Commissioner is taken to have served notice in writing of the determination on the relevant taxpayer if the Commissioner causes the notice to be published in a manner that results in the notice being accessible to the public and reasonably prominent. The notice is taken to have been served on the day on which the publication takes place.
Objections
(9) If a taxpayer to whom a determination relates is dissatisfied with the determination, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 .
Effect of determination of franking debit or exempting debit
(10) If the Commissioner makes a determination under paragraph (5)(a):
(a) on the day on which notice in writing of the determination is served on the entity, a franking debit or exempting debit of the corporate tax entity arises in respect of the distribution; and
(b) the amount of the franking debit or exempting debit is such amount as is stated in the Commissioner's determination, being an amount that:
(i) the Commissioner considers reasonable in the circumstances; and
(ii) does not exceed the amount of the franking debit or exempting debit of the entity arising under item 1 of the table in section 205 - 30 of the Income Tax Assessment 1997 or item 2 of the table in section 208 - 120 of that Act in respect of the distribution.
Effect of determination that no imputation benefit is to arise
(11) If the Commissioner makes a determination under paragraph (5)(b), the determination has effect according to its terms.
Application of section to non - share dividends
(12) This section:
(a) applies to a non - share equity interest in the same way as it applies to a membership interest; and
(b) applies to an equity holder in the same way as it applies to a member; and
(c) applies to a non - share dividend in the same way as it applies to a distribution.
Meaning of interest in membership interests
(13) A person has an interest in membership interests if:
(a) the person has any legal or equitable interest in the membership interests; or
(b) the person is a partner in a partnership and:
(i) the assets of the partnership include, or will include, the membership interests; or
(ii) the partnership derives, or will derive, income indirectly through interposed companies, trusts or partnerships, from distributions made on the membership interests; or
(c) the person is a beneficiary of a trust (including a potential beneficiary of a discretionary trust) and:
(i) the membership interests form, or will form, part of the trust estate; or
(ii) the trust derives, or will derive, income indirectly through interposed companies, trusts or partnerships, from distributions made on the membership interests.
Meaning of scheme for a disposition
(14) A scheme for a disposition of membership interests or an interest in membership interests includes, but is not limited to, a scheme that involves any of the following:
(a) issuing the membership interests or creating the interest in membership interests;
(b) entering into any contract, arrangement, transaction or dealing that changes or otherwise affects the legal or equitable ownership of the membership interests or interest in membership interests;
(c) creating, varying or revoking a trust in relation to the membership interests or interest in membership interests;
(d) creating, altering or extinguishing a right, power or liability attaching to, or otherwise relating to, the membership interests or interest in membership interests;
(e) substantially altering any of the risks of loss, or opportunities for profit or gain, involved in holding or owning the membership interests or having the interest in membership interests;
(f) the membership interests or interest in membership interests beginning to be included, or ceasing to be included, in any of the insurance funds of a life assurance company.
(15) In determining whether a distribution flows indirectly to a person, assume that the following provisions of the Income Tax Assessment Act 1997 had not been enacted:
(a) section 295 - 385 (about income from assets set aside to meet current pension liabilities), section 295 - 390 (about income from other assets used to meet current pension liabilities) and 295 - 400 (about income of a PST attributable to current pension liabilities); or
(b) paragraph 320 - 37(1)(a) (about segregated exempt assets) or paragraph 320 - 37(1)(d) (about income bonds, funeral policies and scholarship plans).
When imputation benefit is received
(16) A taxpayer to whom a distribution flows indirectly receives an imputation benefit as a result of the distribution if:
(a) the taxpayer is entitled to a tax offset under Division 207 of the Income Tax Assessment Act 1997 as a result of the distribution; or
(b) where the taxpayer is a corporate tax entity--a franking credit would arise in the franking account of the taxpayer as a result of the distribution.
Note: Where the distribution is made directly to the taxpayer, see subsection 204 - 30(6) of the Income Tax Assessment Act 1997 for a definition of imputation benefit .
Meaning of relevant circumstances of scheme
(17) The relevant circumstances of a scheme include the following:
(a) the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding membership interests, or having interests in membership interests, in the corporate tax entity that are respectively borne by or accrue to the parties to the scheme, and whether there has been any change in those risks and opportunities for the relevant taxpayer or any other party to the scheme (for example, a change resulting from the making of any contract, the granting of any option or the entering into of any arrangement with respect to any membership interests, or interests in membership interests, in the corporate tax entity);
(b) whether the relevant taxpayer would, in the year of income in which the distribution is made, or if the distribution flows indirectly to the relevant taxpayer, in the year in which the distribution flows indirectly to the relevant taxpayer, derive a greater benefit from franking credits than other entities who hold membership interests, or have interests in membership interests, in the corporate tax entity;
(c) whether, apart from the scheme, the corporate tax entity would have retained the franking credits or exempting credits or would have used the franking credits or exempting credits to pay a franked distribution to another entity referred to in paragraph (b);
(d) whether, apart from the scheme, a franked distribution would have flowed indirectly to another entity referred to in paragraph (b);
(e) if the scheme involves the issue of a non - share equity interest to which section 215 - 10 of the Income Tax Assessment Act 1997 applies--whether the corporate tax entity has issued, or is likely to issue, equity interests in the corporate tax entity:
(i) that are similar, from a commercial point of view, to the non - share equity interest; and
(ii) distributions in respect of which are frankable;
(f) whether any consideration paid or given by or on behalf of, or received by or on behalf of, the relevant taxpayer in connection with the scheme (for example, the amount of any interest on a loan) was calculated by reference to the imputation benefits to be received by the relevant taxpayer;
(g) whether a deduction is allowable or a capital loss is incurred in connection with a distribution that is made or that flows indirectly under the scheme;
(ga) whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is sourced, directly or indirectly, from unrealised or untaxed profits;
(h) whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is equivalent to the receipt by the relevant taxpayer of interest or of an amount in the nature of, or similar to, interest;
(i) the period for which the relevant taxpayer held membership interests, or had an interest in membership interests, in the corporate tax entity;
(j) any of the matters referred to in subsection 177D(2).
Meaning of greater benefit from franking credits
(18) The following subsection lists some of the cases in which a taxpayer to whom a distribution flows indirectly receives a greater benefit from franking credits than an entity referred to in paragraph (17)(b). It is not an exhaustive list.
(19) A taxpayer to whom a distribution flows indirectly receives a greater benefit from franking credits than an entity referred to in paragraph (17)(b) if any of the following circumstances exist in relation to that entity in the year of income in which the distribution giving rise to the benefit is made, and not in relation to the taxpayer if:
(a) the entity is not an Australian resident; or
(b) the entity would not be entitled to any tax offset under Division 207 of the Income Tax Assessment Act 1997 because of the distribution; or
(c) the amount of income tax that would be payable by the entity because of the distribution is less than the tax offset to which the entity would be entitled; or
(d) the entity is a corporate tax entity at the time the distribution is made, but no franking credit arises for the entity as a result of the distribution; or
(e) the entity is a corporate tax entity at the time the distribution is made, but cannot use franking credits received on the distribution to frank distributions to its own members because:
(i) it is not a franking entity; or
(ii) it is unable to make frankable distributions.
Note: Where the distribution is made directly to the taxpayer, see subsections 204 - 30(7), (8), (9) and (10) of the Income Tax Assessment Act 1997 for a list of circumstances in which the taxpayer will be treated as deriving a greater benefit from franking credits than another entity.