Be a franking entity s 205 45 fdt payable is equal to

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be a franking entity (s 205-45) FDT payable is equal to the amount of the  deficit in its franking account at the time FDT is a pre-payment of income tax and results  in a credit in the entity’s franking account (s  205-15)  The entity may be entitled to a   tax offset for the  payment of FDT (s 205-70)
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Foundations of Taxation Law [¶23.8](a) © CCH Australia Limited Gross-up & credit mechanism Gross-up & credit mechanism Subdiv 207-A contains the general “gross-up”  and “credit” rules, which provide that an entity  that receives a franked distribution is: Required to include the franking credit in  assessable income, and Entitled to a tax offset for the franking credit Subdiv 207-B contains special flow-through  rules Subdiv 207-A operates subject to: Subdiv 207-C – residency requirement Subdiv 207-D and 207-E – exempt entity rules Subdiv 207-F – anti-avoidance rules
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Resident Individual  (46.5%) Resident Company  (30%) Complying  Super Fund  (15%) Dividend (s 44) $700 $700 $700 Franking gross-up (s 207-20(1)) $300 $300 $300 Taxable income $1,000 $1,000 $1,000 Tax (before tax offset) $465 $300 $150 Franking tax offset (s 207-20(2) $300 $300 $300 Net Tax (or Refund) $165 Nil ($150) Payment of $700 fully franked dividend to residents Example of gross-up & credit rule Example of gross-up & credit rule [¶23.8](b) © CCH Australia Limited Foundations of Taxation Law
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Foundations of Taxation Law [¶23.8](c) © CCH Australia Limited Refundable tax offset rules Refundable tax offset rules Contained in Div 67 ITAA97 Allows resident individuals and complying  superannuation entities refunds for any excess  franking credits that are not offset against their  income tax liabilities for a particular year Refunds are   not available to non-complying  superannuation entities or companies Special rules allow companies to convert their  “excess franking offsets” into equivalent tax  loss amounts (s 36-55)
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Foundations of Taxation Law [¶23.9](a) © CCH Australia Limited Capital reductions Capital reductions Under the  Corporations Act  companies are  permitted to reduce their share capital provided:  It is fair and reasonable to the company’s  shareholders as a whole It does not materially prejudice the company’s  ability to pay its creditors, and The reduction is approved by shareholders A reduction of capital will give rise to different  CGT events (C2 or G1) depending on whether  or not the shareholder’s shares are cancelled
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Foundations of Taxation Law CGT events C2 and G1 CGT events C2 and G1 [¶23.9](b) Company Shares  Cancelled CGT event C2 Capital Gain/Loss  difference between  capital proceeds  and  cost base Shares  Not Cancelled CGT event G1 Cost base readjusted  until it reaches Nil 
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