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Hugh_Knowhoo(Enthusiast)Enthusiast
1 Aug 2024

Hi


Just wanting to confirm my understanding of a transaction on a company Franking Account.


A company received a $100 Franked dividend with a $43 Franking Credit. The company is not a Base Rate Entity. Assume this is the only transaction for the company during the year.


A $43 credit would go to the Franking acc. on recipt of the dividend. Tax payable at year end is $43 being $143 x 30%. The Franking Credit is entered at Item C on the Calculation Statement of the Tax Return being a "Non-refundable non-carry forward tax offset" and no tax is payable as the franking credit offsets the tax bill.


Do I debit the Franking account to account for the use of the Franking Credit to effectively pay the company tax bill? This leaves the Franking account balance at $0.


Thanks





2,948 views
7 replies
2,948 views
7 replies

Most helpful response

Most helpful reply

KevColl(Superuser)Superuser
1 Aug 2024

Franking credits from dividends received do not form part of the franking account for a company.

The franking credits received from the dividend are included in provision for income tax as a debit.

If tax payable is equal to or greater than franking credits.

Non-refundable non-carry forward tax offset" and no tax is payable as the franking credit offsets the tax bill.

Yes.


Franking account records taxes paid by company.

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Most helpful reply

KevColl(Superuser)Superuser
1 Aug 2024

Franking credits from dividends received do not form part of the franking account for a company.

The franking credits received from the dividend are included in provision for income tax as a debit.

If tax payable is equal to or greater than franking credits.

Non-refundable non-carry forward tax offset" and no tax is payable as the franking credit offsets the tax bill.

Yes.


Franking account records taxes paid by company.

Hugh_Knowhoo(Enthusiast)Enthusiast
1 Aug 2024

Hi KevColl


Thanks for your prompt response.


Respectfully, I've found a couple of references from the ATO that contradict your answer.


"A franking credit is most commonly recorded in the account if the entity receives a franked distribution, pays income tax or a PAYG instalment, or incurs a liability for franking deficit tax (FDT). The credit is equal to the amount of tax or PAYG instalment paid, the franking credit attached to the distribution received, or the FDT liability incurred."


and as part of an example


"27 June 2014 - Fully franked dividend of $70 received - Credit $30"


I'm thinking I have to put a debit to the Franking account as it's like a tax refund being used to pay off the tax debt.


Again, thanks for your response.


Hugh Knowhoo


 






Dang2304(Newbie)Newbie
23 Nov 2024

You do not need to record the use of that particular franking credit to pay the company tax bill in the FA.


The main purpose of FA is to track the amount of franking credit that can be passed on to the shareholders.


The main concern seems to be whether you need to adjust the franking account at year-end to achieve a zero balance. However, according to ATO guidance, in an example, “the franking account can have a surplus at 30 June; franking deficit tax does not apply, and no end-of-year adjustments are necessary.” => In this case, it’s acceptable for the franking account to carry a credit balance, such as the $43 mentioned.


Only when FA as a debit balance at year-end would trigger franking deficit tax (FDT). In such a case, you would credit the FDT to bring the franking account back to zero, paying the FDT by the due date or carrying it forward, provided all conditions are met.

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