Private ruling: Benchmark franking percentage in respect of a share buyback
Date of advice: 9 July 2025
Published: 8 September 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: X/XX/20XX

Ruling: Q1: Pursuant to Division 203 of the Income Tax Assessment Act 1997 ( ITAA 1997 ), after the payment of the frankable dividend to all shareholders (unfranked at 0%) is the Taxpayer's benchmark franking percentage for the franking period 0%? | A1: Yes. | Q2: If the answer to Question 1 is 'Yes', must the dividend attributable to the market value of the share buy-back be unfranked to 0% as per the benchmark rule? | A2: Yes.

Relevant facts and circumstances: 1. The Taxpayer is a private company that was registered with ASIC on XX/XX/XXXX. 2. The Taxpayer is not registered for GST. 3. The directors of the Taxpayer are Director A, Director B and Director C. 4. The Taxpayer currently has Xxx Ordinary shares on issue. 5. The issued shares of the Taxpayer are held in the following proportions: (a) Company A beneficially holds xxx Ordinary shares; (b) Director A beneficially holds xxx Ordinary shares (c) Individual A beneficially holds xxx Ordinary shares (d) Individual B beneficially holds xx Ordinary shares, and (e) Individual C beneficially holds xx Ordinary shares. Hereafter, collectively referred to as 'the Shareholders'. 6. Each of the ordinary shares issued by the Taxpayer were at a nominal value of XX cents per share. 7. On XX/XX/20XX, the Deceased passed away. 8. Under Clause 2 of the Deceased's Will dated XX/XX/20XX (the Will), Director A was appointed as the executor and trustee of the Deceased's estate (the Estate). 9. On XX/XX/20XX, probate was granted to Director A as the executor appointed under the Will. 10. The residual beneficiaries of the Estate are the children of the Deceased, namely: (a) Director A (the Executor) (b) Individual A (c) Individual B (d) Individual C (e) Individual D (f) Individual E 11. Individual A was in ill health and wished to receive consideration for the value of their shares. 12. Individual A and Director A entered into a Deed of Settlement and Release on XX/XX/20XX. 13. As part of the Deed of Settlement and Release, the Taxpayer will enter into a selective share buyback to buy back all xxx of Individual A's shares in the Taxpayer. 14. The values in the balance sheet of the Taxpayer as at 30 June 20XX was one of the documents used as a basis of determining the settlement sum to be paid to Individual A. 15. The allocation of the settlement sum towards the selective share buyback was $XXX. The Taxpayer will split this sum into: (a) the Capital Amount: $ XXX and (b) the Market Value Amount: $XXX. 16. The Capital Amount was calculated in accordance with the average capital per share method in paragraph 62 of Law Administration Practice Statement PS LA 2007/9 Share buy-backs (i.e. XX cents per share x xxx shares = $XX). 17. The Market Value Amount was calculated based on the net asset value of the Taxpayer as at 30 June 20XX being $XXX. The market value of Individual A shares being $XXX (i.e. x00/x00 x $XXX). 18. The assets of the Taxpayer are limited to managed funds that all have published market values, bank accounts and related party loans, and do not require valuation. 19. The Taxpayer's franking credits amount to X% of its retained earnings. 20. In fairness to all shareholders, before the share buy-back, the Taxpayer wiII pay a frankable dividend to all shareholders including Individual A. This frankable dividend will be the first dividend paid in the 20XX income year and will be unfranked at 0%. 21. Later in the same income year, the amount attributable to the share buyback of $XXX will be treated as follows: (a) the Capital Amount was $XX pursuant to section 159GZZZP of the Income Tax Assessment Act 1936 , (b) the Market Value Amount of $XXX was franked to 0%.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 159GZZZP | Income Tax Assessment Act 1997 Division 203 | Income Tax Assessment Act 1997 section 203-5 | Income Tax Assessment Act 1997 subsection 203-5(1) | Income Tax Assessment Act 1997 subsection 203-10(1) | Income Tax Assessment Act 1997 section 203-25 | Income Tax Assessment Act 1997 section 203-35 | Income Tax Assessment Act 1997 subsection 203-35(1) | Income Tax Assessment Act 1997 section 203-45

Reasons for decision: Summary: Yes. The Taxpayer's benchmark franking percentage for the franking period will be 0%. | Detailed Reasoning - Detailed Reasoning: 1. The benchmark rule is set out in sections 203-5 and 203-25. As provided in subsection 203-5(1), the benchmark rule is that a corporate tax entity must frank all frankable distributions made within a particular period at a franking percentage set as the benchmark for that period. 2. Section 203-25 expands on this to state that, 'an entity must not make a frankable distribution whose franking percentage differs from the entity's benchmark percentage for the franking period in which the distribution is made'. 3. The overriding object of the benchmark rule at section 203-15. is 'to ensure that one member of a corporate tax entity is not preferred over another when the entity franks distributions'. 4. As the Taxpayer is a private company, its franking period is set out under section 203-45 to be the same period as the income year. That is, the Taxpayer's franking period commences on 1 July of each year and ends on 30 June of the following year. 5. In accordance with subsection 203-10(1), the benchmark franking percentage for an entity is set by reference to the franking percentage for the first frankable distribution made by the entity during the relevant period. 6. Section 203-35 sets out the formula for calculating the franking percentage. Once this franking percentage is applied to the first frankable distribution that a private company makes during its franking period, it will form the benchmark for the remainder of the franking period. 7. Subsection 203-35(1) provides the following formula for calculating the franking percentage for a frankable distribution: (Franking credit allocated to the frankable distribution/Maximum franking credit for the distribution) x x00 | Detailed Reasoning - Application to your circumstances: 8. As the Taxpayer pays the frankable dividend to the shareholders unfranked at 0%, the franking percentage for the 20XX income year will be 0%. | Detailed Reasoning - Conclusion: 9. The Taxpayer's benchmarking franking percentage for the 20XX income year will be 0%. | Detailed Reasoning - Question 2: If the answer to 2 is yes, must the dividend attributable to the market value of the share buy-back be unfranked to 0% as per the benchmark rule? | Summary: Yes, the dividend attributable to the share buyback will be unfranked at 0%, to be consistent with the benchmark rule. | Detailed Reasoning - Detailed Reasoning: 10. The relevant legislation is unchanged to Question 2. | Detailed Reasoning - Application to your circumstances: 11. Pursuant to the benchmark rule in subsection 203-5(1), a corporate tax entity is required to frank all frankable distributions made during the entity's franking period at the benchmark franking percentage. 12. ln the present circumstances, the Taxpayer paid all shareholders a frankable dividend unfranked at 0% prior to the selective share buy-back. 13. As the share buyback occurred in the same income year, it is therefore required to frank the dividend attributable to the market value of the share buy-back (i.e. $XXX) at the same benchmark franking percentage (i.e. 0%). | Detailed Reasoning - Conclusion: 14. As the off-market share buyback will occur in the 20XX income year, the dividend attributable to the share buyback must also be unfranked at 0%.

Reasons for decision: All legislative references are to the ITAA 1997 unless otherwise stated. | Pursuant to Division 203, after the payment of the frankable dividend to all shareholders (unfranked at 0%), is the Taxpayer's benchmark franking percentage for the franking period 0%?