Franking Q and A

Posted On: Thursday, November 08, 2018

Scenario:

2015 - company had profit of $10,000. Company paid 30% tax

2016 - company had profit of $12,000. Company paid 28.5% tax

2017 - company had a loss of $100.00

2017 - company ceased trading, capital losses of $160,000

2018 - company had no income, trading losses of $2,000

Questions

1)Can the company pay 30% franked dividends to its shareholder in 2018? Can the shareholder (who had no income in 2018) claim the franking credits in 2018?

2)Has the Surplus Asset Test had any impact in the above distribution?

ANSWER

We suggest not. The Commissioner clarified his views in Taxation Ruling 2012/5 after 254T of the Corporation Law was amended to suggest what you want is possible.

We will confine our comments to the Commissioner's views which is notwithstanding 254T, the dividend must be paid out of either current year or accumulated profits.

The question becomes... are there accumulated profits? With the capital losses it is considered that the company would be in a negative net asset position.

Given this a franked dividend cannot be paid.

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