Press Release - Co-operatives Allowed to Frank Dividends [21/11/2002]
C120/02
21 November 2002
CO-OPERATIVES ALLOWED TO FRANK DIVIDENDS
The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, today
announced new rules for the treatment of distributions by co-operative companies,
allowing them to frank distributions to members made from 1 July 2002.
Senator Coonan said co-operative companies would now have the same access to
accumulated imputation credits as other companies. However, the current treatment
will be maintained for co-operatives that do not wish to frank distributions.
Previously, co-operative companies could not frank distributions; instead,
a deduction was allowable to the company. Under the new rules, a deduction will
continue to be allowed to the extent that a distribution is not franked.
Franking credits may have arisen where a co-operative company has retained
profits.
"Shareholders will now be able to obtain recognition for franking credits
in respect of tax paid by the cooperative on those retained profits when they
are distributed as dividends," Senator Coonan said.
"The new rules will provide greater flexibility and equity for co-operative
companies with accumulated franking credits.
"Shareholders of these companies will also be winners as a result of the
new rules because they will now be able to benefit from the tax already paid
by the cooperative company."
Consultations have been held with co-operative companies to ensure that the
new rules will accommodate their concerns.
Amendments to implement these changes will be introduced as soon as practicable.
More details of the changes are set out in Attachment A.
Attachment A
Franking of distributions by co-operative companies
The rules that will apply in relation to distributions made by a co-operative
company on or after 1 July 2002 in general terms are:
- Distributions made by a co-operative company on or after 1 July 2002 will
generally be frankable. Distributions that would otherwise give rise to a
deduction under paragraphs 120(1)(a) or (b) of the Income Tax Assessment Act
1936 will no longer be treated as unfrankable distributions. This means that
the imputation rules will apply to a co-operative company in the same way
as they apply to any other company.
- A co-operative company will be able to make an unfranked distribution,
notwithstanding that it has sufficient franking credits available to frank
the distribution.
- Co-operative companies will be excluded from the requirement to provide
a distribution statement when they make an unfranked distribution.
- A deduction will be allowed for the unfranked part of the distributions
made in the income year to the extent that the unfranked distributions were
paid from assessable income of the income year. The deduction is generally
allowable for the income year in which the distribution is made. However,
the deduction may be allowable for the preceding income year in certain circumstances
(see next dot point).
- The condition on the deduction relating to assessable income is consistent
with the existing law. Where a distribution is paid partly from assessable
income of the income year and partly from another source e.g. retained
earnings or a pre-capital gains tax gain, the distribution will be apportioned
accordingly to calculate the allowable deduction.
- If a co-operative company breaches the benchmark rule, which requires
that all distributions made in a franking period are franked to the same
extent, the normal penalties would apply i.e. a penal franking debit or
overfranking tax would be imposed. No other penalty would be imposed.
In particular, there will be no adjustment to the amount of the deduction
allowed to the co-operative company under subsection 120(1).
- A distribution paid by a co-operative company within three months after
the end of an income year, or within such time as allowed by the Commissioner
of Taxation, will be considered to have been paid during that income year
if the dividend is paid from assessable year for that income year.
- This rule merely gives a statutory footing to the Commissioner's current
administrative practice.
- This rule applies only in determining whether a deduction is allowable.
The actual payment date is used for the purpose of the imputation rules.