Private ruling: Franking credit tax offset
Published: November 2012
Ruling period: 1 July 2011 to 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the taxpayer entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the $Y off-market share buy-back dividend that was made to them by the private company in 2012? | A1: Yes. Please see our 'Reasons for decision'.

Relevant facts and circumstances: The taxpayer is an Australian resident individual. Prior to the off-market share buy-back, the taxpayer held A ordinary shares in the private company. In 2012, the private company undertook an off-market share buy-back where it bought back, and subsequently cancelled, the taxpayer's A ordinary shares for $Z. Of the $Z off-market share buy-back purchase price, $Y was a fully franked dividend with $X franking credits.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 207-20(1), | Income Tax Assessment Act 1997 Subsection 207-20(2), | Income Tax Assessment Act 1997 Section 207-70 and | Income Tax Assessment Act 1997 Subsection 207-75(1).

Reasons for decision: Summary: The taxpayer is entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the $Y off-market share buy-back dividend that was made to them by the private company in 2012. | Detailed Reasoning - Detailed reasoning: Section 207-70 of the ITAA 1997 provides that unless the taxpayer satisfies the residency requirement: · no amount of the $X franking credits can be included in their assessable income for the income year ended 30 June 2012 under subsection 207-20(1) of the ITAA 1997, and · they are not entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the ITAA 1997. The taxpayer will satisfy the residency requirement under subsection 207-75(1) of the ITAA 1997 as they were a resident in 2012 at the date on which the off-market share buy-back dividend was made. In conclusion, the taxpayer is entitled to a tax offset of the $X franking credits under subsection 207-20(2) of the ITAA 1997 in respect of the off-market share buy-back dividend that was made to them by the private company in 2012.

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