Hi,
If you convert the excess franking credits to a tax loss (for a company), can you still include these franking credits (converted to a loss) in the franking account balance (as a credit)?
thanks
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Hi @Cosi
We'll look into this for you and let you know.
Hi Cosi,
Short answer is no. Here's why -
Generally, the law provides that a company will derive a credit in the franking account where the company pays income tax. This can occur when a company pays an income tax liability or pays an Income Tax Instalment on the relevant activity statement. That credit is then able to be attached to a dividend with the benefit then flowing to the shareholder.
However, in circumstances where excess franking credits are converted into a tax loss under this section of the law, the company can't retain a credit in its franking account.
The receipt of a refund of income tax will lead to a debit in the franking account, equal to the amount of the tax refund. The act of converting excess credits into a tax loss will bring rise to this event. See the relevant legislation here.
Consequently, the company won't be able to retain those credits in the franking account after they've been converted to a tax loss for the income year.
More info on franking debits and tax losses can be found here.
Thank you for this detailed response
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