TABL2751 Week 13 Company Tax

FRANKING ACCOUNTS
Franking Account Entries
Date
Particulars
Surplus in Franking Account on 30 June.
This does not generate a credit in the
Franking Account for the Current Year.
The surplus stays as the Balance in the
Franking Account
Credit Entries: s 205-15
When Paid PAYG Instalment Paid: Item 1 in Table
in s 205-15
Payment of Company Income Tax on:
When Paid Item 2 in Table in s 205-15

Debits

Day
Company
receives
a
Franked
Distribution Distribution: Item 3 in Table in s 205-15
Made
Instant
After
Liability
Incurred

Company Incurs a Liability to pay

Franking Deficit Tax under s 20545(2): Item 5 in Table in s 205-15
Deficit in Franking Account on 30 June.
This does not give rise to a Debit in the
Franking Account. There will however
be Franking Deficit Tax implications. (6)
Debit Entries: s 205-30

Franking
Day
Credit on
Distribution Payment of franked distribution: Item 1 Distributio
Made
in Table in s 205-30
n
Day Refund Refund of Company Income Tax: Item 2
Refund
Received in Table in s 205-30
Received

Credits

Amount
Paid
Amount
Paid
Franking
Credit on
Distributio
n
Amount of
Liability

Balance

Tutorial 12: Week 13 Taxation of Companies

Date
30 June 2012
28 July 2012
30 September 2012
28 October 2012
15 November 2012
28 February 2013
28 April 2013

Detail
Opening Balance
June 2011 PAYGI: Item 1 in Table in s 205-15
Distribution received (280,000): Item 3 in
Table in s 205-15
September 2011 PAYGI: Item 1 in Table in s
205-15
Tax Refund: Item 1 in Table in s 205-30
December 2011 PAYGI: Item 1 in Table in s
205-15
March 2011 PAYGI: Item 1 in Table in s 205-15

Debit

Credit
90,000
84,000

Balance
50,000
(40,000)
(124,000)

90,000

(214,000)

90,000

(174,000)
(264,000)

90,000

(354,000)

40,000

(2) It is recommended that at least 60% is franked to avoid franking deficit taxation. The greater the
franking credits the better as a greater tax offset will be available.
General Discussion Questions
(1) This is allowed however, there are several consequences of exceeding the MFC. These incl.:
1.
The debit to the franking account does not remain the full amount of credits the company tried to
allocate/attach to the distribution. Instead, the MFC (i.e. $51,428) replaces the amount attempted to be
allocated (i.e. $60,000) for the purpose of the debit rule in s 205-30; and
2.
Shareholder receiving the distribution only includes the MFC (i.e. $51,428) in their assessable
income, and only obtains a tax offset for the MFC (i.e. $51,428): s 202-65.
(2) Assessable Income = $2,000
Tax Payable = $0
Less: tax offsets = $857 (refund)
(3) Hong Kong resident no DTA

Dividend

4B (50%
franked)
5,000

Franked portion
Unfranked portion
Withholding tax (30% of unfranked portion)

2,500
2,500
(750)

Amount sent to non-resident

4,250