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Velwat(Newbie)Newbie
18 Nov 2025

I have a client who has a company (turnover under $20 million) that has claimed the R & D Tax Offset for several years. In each year, the income tax liability has been exceeded by the amount of the R & D Tax Offset, hence it has received a nett refund from the ATO each year. The accumulated refunds over 12 tax returns is about $70,000. If the company is wound up, or ceases trading, is there a need to pay Franking Deficit tax? The company has never paid dividends to its members. Thanks for any assistance that can be provided.

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178 views
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ExMember22(Champion)Champion
19 Nov 2025

As there is no debit to the franking account for tax refunds to the extent they relate to the R&D tax offset (205-30(2)(b) ITAA 1997) they cannot result in franking deficit tax as they cannot cause the franking account to be in deficit. Whilst they are often referred to as 'deferred franking debits' they aren't technically ever debited to the account - Instead future amounts that would otherwise be credited to the franking account (for PAYG instalments or tax paid only) will first be offset against the 'deferred franking debits' and only any excess after the 'deferred franking debits' are reduced to nil will be credited to the franking account.

DamienATO(Community Support)Community Support
21 Nov 2025

Hi @Velwat,

 

For companies with turnover under $20 million that receive refundable R&D tax offsets, there's generally no franking deficit tax issue when winding up or ceasing to trade.

 

The refundable R&D tax offset is paid out as a cash refund for smaller companies, so there's typically nothing to carry forward. Since your client's company has never paid dividends and has been receiving net refunds rather than building up franking credits, a franking deficit shouldn't arise.

 

However, given the specific circumstances and accumulated refunds of $70,000 over 12 years, we'd recommend reviewing the company's franking account position with the specific details of each year's tax position.

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