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INCOME TAX ASSESSMENT ACT 1997 - SECT 220.300

NZ franking company's franking account affected by franking accounts of some of it s 100% subsidiaries

             (1)  This section has effect if all these conditions are met in relation to a company (the franking donor company ) at a time:

                     (a)  the franking donor company is at the time:

                              (i)  an Australian resident or a * post-choice NZ franking company; and

                             (ii)  a * 100% subsidiary of a post-choice NZ franking company (the parent company ) that is not a 100% subsidiary of another company that is a member of the same * wholly-owned group as the parent company;

                     (b)  the franking donor company is at the time a 100% subsidiary of a post-choice NZ franking company (the NZ recipient company ) in relation to which these requirements are met:

                              (i)  there must be no companies that are * NZ residents and 100% subsidiaries of the NZ recipient company interposed between it and the franking donor company;

                             (ii)  the NZ recipient company must be either the parent company or a 100% subsidiary of the parent company;

                     (c)  there are interposed between the NZ recipient company and the franking donor company at the time one or more companies, each of which:

                              (i)  is a 100% subsidiary of the NZ recipient company; and

                             (ii)  is neither an Australian resident nor an NZ resident.

What is a post-choice NZ franking company ?

             (2)  A company is a post-choice NZ franking company at a time if:

                     (a)  at the time, the company is an * NZ franking company; and

                     (b)  the notice constituting the * NZ franking choice that makes the company an NZ franking company at the time was given to the Commissioner at or before the time.

Franking donor company's franking surplus when conditions met

             (3)  If the franking donor company's * franking account is in * surplus at the first time all the conditions in subsection (1) are met:

                     (a)  a * franking debit equal to the surplus arises in the franking donor company's franking account immediately after that time; and

                     (b)  a * franking credit equal to the surplus arises in the NZ recipient company's franking account immediately after that time.

Franking donor company's franking deficit when conditions met

             (4)  If the franking donor company's * franking account is in * deficit at the first time all the conditions in subsection (1) are met, subsection 205-45(3) applies in relation to the franking donor company as if:

                     (a)  it ceased to be a * franking entity at that time; and

                     (b)  its franking account had been in deficit to the same extent immediately before that cessation.

Note:          Subsection 205-45(3) makes an entity liable to pay franking deficit tax if the entity ceases to be a franking entity and had a franking deficit immediately before ceasing to be a franking entity.

NZ recipient company's franking account after conditions are met

             (5)  If, apart from paragraph (a), a * franking credit or * franking debit would arise in the franking donor company's * franking account at a time (the accounting time ) that is a time when all the conditions in subsection (1) are met but after the first time at which all those conditions are met in relation to the franking donor company:

                     (a)  the credit or debit does not arise in the franking donor company's franking account; and

                     (b)  a credit or debit of the same amount arises at the accounting time in the NZ recipient company's franking account instead.

             (6)  However, subsection (5) does not apply in relation to:

                     (a)  a * franking debit arising in the franking donor company's * franking account under subsection (3); or

                     (b)  a * franking credit arising in that account because of item 5 of the table in section 205-15 in conjunction with subsection (4) of this section; or

                     (c)  a franking debit arising in that account under paragraph 220-605(3)(a).

Note 1:       Item 5 of the table in section 205-15 gives rise to a franking credit immediately after a liability to franking deficit tax arises. Subsection (4) of this section causes such a liability to arise under section 205- 45.

Note 2:       Paragraph 220-605(3)(a) gives rise to a franking debit if the NZ franking choice of a company that is a former exempting entity is revoked or cancelled and the company's exempting account is in deficit immediately before the revocation or cancellation.

Franking donor company's benchmark franking percentage

             (7)  Subsection (5) does not affect the franking donor company's * benchmark franking percentage.

Special rules if franking donor company is former exempting entity

             (8)  If the franking donor company becomes a * former exempting entity at the first time all the conditions in subsection (1) are met:

                     (a)  subsections (3) and (4) do not apply; and

                     (b)  subsection (5) does not apply in relation to:

                              (i)  a * franking credit arising in the franking donor company's * franking account under item 1 of the table in section 208-130 immediately after that time; or

                             (ii)  a * franking debit arising in the franking donor company's franking account under item 1 of the table in section 208-145 immediately after that time.

Note:          Subsection (8) ensures that the franking donor company's franking account has a nil balance immediately after the company becomes a former exempting entity and that there is an appropriate balance in the company's exempting account that is not made available for use by the NZ recipient company in franking distributions.

Effect of NZ franking company making distribution that is non-assessable and non-exempt



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