Question:
Allocation of Franking Credits by Trustees
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
A recent Federal Court decision has made it abundantly clear that franking credits must be allocated to beneficiaries in the same proportion as the relevant dividends.
The trustee of the Thomas Investment Trust had resolved to distribute the net income in proportions to an individual and a company. In a second resolution it resolved to distribute the franking credits in different proportions.
The trustee then sought and obtained directions from the Supreme Court of Queensland that franking credits were to be dealt with by the trustee and could be distributed to beneficiaries in accord with those trustee resolutions.
However in a later hearing the superior Federal Court decided that the Supreme Court orders could not operate to deprive the Taxation Commissioner of a right to make submissions on all questions of fact and law. Hence the Federal Court had to form its own conclusions.
The Federal Court further held that as neither “income” nor “net income” were defined in the Trust Deed they did not refer to assessable income under the tax acts (what is known as Section 95 net income).
Next the Federal Court held that franking credits were not “ordinary income.” They were not dividends or income under the trust deed and could not be streamed to particular beneficiaries. Hence a trustee resolution to allocate franking credits in different proportions to the franked dividends were not effective.
Thomas v. Federal Commissioner of Taxation (2015 ATC 20-526)
Andrew and Tony Lovett
22 February 2016
