Announcements
Are you a tax professional needing a bit more time to lodge? Check out how to apply online for a deferral, or ask the Community!

ATO Community

Tax rate for Imputation purposes

Initiate

Views 2718

Replies 7

Hi

 

Can someone please guide me on Tax rate for Imputation purposes?

 

- Do we need to check Tax rate for Imputation purposes in 2017 only in case if a Company is SBE in 2017? Or do we need to check Tax rate for Imputation purposes in 2017 irrespective of the Company is SBE or not in 2017?

 

 - Further, please provide answer to following examples to get the better clarity.

  •  Company A - 
  • T/O of 2016: $8 million
  • T/O of 2017: $12 million
  • Income Tax Rate for 2017: 27.5% (As company is SBE - Previous year T/O less than $10 million.)
  • Tax rate for Imputation purposes for 2017: ???

 

  • Company B - 
  • T/O of 2016: $15 million
  • T/O of 2017: $9 million
  • Income Tax Rate for 2017: 27.5% (As company is SBE - Current year T/O less than $10 million.)
  • Tax rate for Imputation purposes for 2017: ???

 

  • Company C - 
  • T/O of 2016: $13 million
  • T/O of 2017: $11 million
  • Income Tax Rate for 2017: 30% (None of the T/O threshold for SBE are satisfied)
  • Tax rate for Imputation purposes for 2017: ???
1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Former Community Support

Replies 1

Hi @MEETBHIMANI,

 

Thanks for your patience whilst we clarified information regarding your query.

 

Yes, you are correct. The applicable tax rate for company B will be 27.5% as the T/O for this company in the 2017 year is less than $10 million.

 

You are also correct with your second point; however a company cannot opt in or out of being an SBE in regards to the company tax rates. If a company is eligible to apply the reduced tax rate of 27.5% it must apply that rate. To determine the franking rate applicable you are required to compare the turnover of the previous year with the current year threshold, this method is used regardless if the company is a SBE or not. As you have mentioned the threshold for the 2017 financial year is $10 million. In this case as the T/O for the previous year is more than $10 million therefore the applicable franking rate is 30%. If the turnover for the previous year was less than $10 million the franking rate would be 27.5%.

 

Hope this helps, JodieH.

7 REPLIES 7

Initiate

Replies 6

Further, to my above mentioned question. Please consider following scenario and provide reply for the same as well.

 

  • Company A:
  • 2016 T/O: 8 million
  • 2017 T/O: 12 million
  • Income Tax rate for 2017: 30% (Company didn't opt for SBE in 2017 as there were losses and not benefit for the tax purposes.)
  • Tax rate for Imputation purposes: ???

 

  • Company B:
  • 2016 T/O: 13 million
  • 2017 T/O: 5 million
  • Income Tax rate for 2017: 30% (Company didn't opt for SBE in 2017 as there were losses and not benefit for the tax purposes.)
  • Tax rate for Imputation purposes: ???

 

Much appreciated.

 

Thanks.

Former Community Support

Replies 5

Hi @MEETBHIMANI

 

Thanks for your patience whilst we received specialist information regarding your query!

 

Generally, your gross up rate is calculated from your previous year turnover. 

 

In your example Company A has a turnover in 2016 of $8 million. When franking their distribution for the 2017 year, Company A assumes their 2017 aggregated turnover (T/O) will be the same as it was in 2016.  As their 2016 year T/O was less than $10 million and they are carrying on a business, their corporate rate will be 27.5% and they will frank their 2017 distribution based on this rate. 

 

Even though company B’s aggregated T/O declined from $15 million in 2016 to $9 million in 2017, they will assume their 2017 T/O to be $15 million.  As their 2017  T/O is  greater than $10 million their corporate and franking rate is 30%.

 

Company C T/O in 2017 is assumed to be the T/O for 2016 which is $13 million.  As company C T/O in 2016 is greater than #10 million, their corporate and franking rate is 30%.

 

Where you have losses in 2017, you must have paid enough tax in that year to frank your distributions. The franking credit calculation method would be the same.

 

You can find more information on Allocating franking credits, and Calculating the maximum franking credit for prior years, which may help you resolve your issue on our website. 

 

Thanks, JodieH. 

Initiate

Replies 4

Hi Jodie,

 

Thanks for getting back to me.

 

I observed a flaw in one of your answers and need a bit more clarity over another answer.

 

With respect to "Even though company B’s aggregated T/O declined from $15 million in 2016 to $9 million in 2017, they will assume their 2017 T/O to be $15 million.  As their 2017  T/O is  greater than $10 million their corporate and franking rate is 30%." shouldn't the Corporate Tax Rate be 27.5% and Franking Rate 30%?

As the T/O of 2017 is $9 Million i.e. less than $10 Million, isn't it eligible for 27.5% Tax Rate?

 

Further, with respect to "Where you have losses in 2017, you must have paid enough tax in that year to frank your distributions. The franking credit calculation method would be the same." Assuming there is enough balance in the Franking Account, applicable Franking Rate should be calculated looking to the previous year T/O and comparing the same to the current year threshold i.e. $10 Million?

 

The company is opting for SBE or not doesn't make any difference to applicable Franking Rate. From 2016-17, the method to calculate maximum Franking Credit is similar for each and every company. They need to compare the previous year T/O with the current year threshold i.e. $10 Million for 2016-17. If it is less than $10 Million then Franking Rate would be 27.5% else it would be 30%, irrespective of their SBE status and current yeat Tax Rate. Is it correct?

 

Awaiting your reply...

 

Initiate

Replies 3

Hi @JodieH,

 

Can you please refer the above concerns and provide your comments for the same?

 

Thanks.

Former Community Support

Replies 0

Hi @MEETBHIMANI,

 

Thanks for following up with us!

 

We've referred your query to a specialist area for further information. We'll get back to you as soon as we can with information.

 

Thanks, JodieH.

Most helpful response

Former Community Support

Replies 1

Hi @MEETBHIMANI,

 

Thanks for your patience whilst we clarified information regarding your query.

 

Yes, you are correct. The applicable tax rate for company B will be 27.5% as the T/O for this company in the 2017 year is less than $10 million.

 

You are also correct with your second point; however a company cannot opt in or out of being an SBE in regards to the company tax rates. If a company is eligible to apply the reduced tax rate of 27.5% it must apply that rate. To determine the franking rate applicable you are required to compare the turnover of the previous year with the current year threshold, this method is used regardless if the company is a SBE or not. As you have mentioned the threshold for the 2017 financial year is $10 million. In this case as the T/O for the previous year is more than $10 million therefore the applicable franking rate is 30%. If the turnover for the previous year was less than $10 million the franking rate would be 27.5%.

 

Hope this helps, JodieH.

Initiate

Replies 0

Thanks a ton @JodieH...

 

Much appreciated...