Private ruling: Frankable distributions
Published: September 2011
Ruling period: 2011 income year

Ruling: Q1: Will the proposed 2011 interim dividend constitute a "frankable distribution" under section 202-40 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The company is an Australian tax resident. The company and its wholly owned subsidiaries have formed a tax consolidated group for income tax purposes. The dividend was paid to the company's shareholders for the 2011 income year. The dividend is sourced from the company's current year profit. The company's net assets exceed its share capital by at least the amount of the dividend.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 202-40

Reasons for decision: Summary: Under section 202-40 of the ITAA 1997, a distribution is a frankable distribution to the extent that it is not unfrankable under section 202-45 of the ITAA 1997. Section 202-45 of the ITAA 1997 lists the distributions that are unfrankable. Paragraph 202-45(e) of the ITAA 1997 lists one of those distributions as: a distribution that is sourced, directly or indirectly, from a company's share capital account. A dividend paid under section 254T of the Corporations Act 2001 will be subject to taxation as an assessable franked dividend if it is paid out of profits or out of an amount other than profits where the company's net assets exceed its share capital before and after the dividend payment, and it is not otherwise sourced, directly or indirectly, from a company's share capital account. Based on the facts provided, the dividend will constitute a frankable distribution under section 202-40 of the ITAA 1997.

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