(e) substantially altering any of the risks of loss, or opportunities for profit or gain, involved in holding or owning the membership interests or having the interest in membership interests;
(f) the membership interests or interest in membership interests beginning to be included, or ceasing to be included, in any of the insurance funds of a life assurance company.
(15) In determining whether a distribution flows indirectly to a person, assume that the following provisions of the Income Tax Assessment Act 1997 had not been enacted:
(a) section 295‑385 (about income from assets set aside to meet current pension liabilities), section 295‑390 (about income from other assets used to meet current pension liabilities) and 295‑400 (about income of a PST attributable to current pension liabilities); or
(b) paragraph 320‑37(1)(a) (about segregated exempt assets) or paragraph 320‑37(1)(d) (about income bonds, funeral policies and scholarship plans).
When imputation benefit is received
(16) A taxpayer to whom a distribution flows indirectly receives an imputation benefit as a result of the distribution if:
(a) the taxpayer is entitled to a tax offset under Division 207 of the Income Tax Assessment Act 1997 as a result of the distribution; or
(b) where the taxpayer is a corporate tax entity—a franking credit would arise in the franking account of the taxpayer as a result of the distribution.
Note: Where the distribution is made directly to the taxpayer, see subsection 204‑30(6) of the Income Tax Assessment Act 1997 for a definition of imputation benefit.
Meaning of relevant circumstances of scheme
(17) The relevant circumstances of a scheme include the following:
(a) the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding membership interests, or having interests in membership interests, in the corporate tax entity that are respectively borne by or accrue to the parties to the scheme, and whether there has been any change in those risks and opportunities for the relevant taxpayer or any other party to the scheme (for example, a change resulting from the making of any contract, the granting of any option or the entering into of any arrangement with respect to any membership interests, or interests in membership interests, in the corporate tax entity);
(b) whether the relevant taxpayer would, in the year of income in which the distribution is made, or if the distribution flows indirectly to the relevant taxpayer, in the year in which the distribution flows indirectly to the relevant taxpayer, derive a greater benefit from franking credits than other entities who hold membership interests, or have interests in membership interests, in the corporate tax entity;
(c) whether, apart from the scheme, the corporate tax entity would have retained the franking credits or exempting credits or would have used the franking credits or exempting credits to pay a franked distribution to another entity referred to in paragraph (b);
(d) whether, apart from the scheme, a franked distribution would have flowed indirectly to another entity referred to in paragraph (b);
(e) if the scheme involves the issue of a non‑share equity interest to which section 215‑10 of the Income Tax Assessment Act 1997 applies—whether the corporate tax entity has issued, or is likely to issue, equity interests in the corporate tax entity:
(i) that are similar, from a commercial point of view, to the non‑share equity interest; and
(ii) distributions in respect of which are frankable;
(f) whether any consideration paid or given by or on behalf of, or received by or on behalf of, the relevant taxpayer in connection with the scheme (for example, the amount of any interest on a loan) was calculated by reference to the imputation benefits to be received by the relevant taxpayer;
(g) whether a deduction is allowable or a capital loss is incurred in connection with a distribution that is made or that flows indirectly under the scheme;
(ga) whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is sourced, directly or indirectly, from unrealised or untaxed profits;
(h) whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is equivalent to the receipt by the relevant taxpayer of interest or of an amount in the nature of, or similar to, interest;
(i) the period for which the relevant taxpayer held membership interests, or had an interest in membership interests, in the corporate tax entity;
(j) any of the matters referred to in subsection 177D(2).
Meaning of greater benefit from franking credits
(18) The following subsection lists some of the cases in which a taxpayer to whom a distribution flows indirectly receives a greater benefit from franking credits than an entity referred to in paragraph (17)(b). It is not an exhaustive list.
(19) A taxpayer to whom a distribution flows indirectly receives a greater benefit from franking credits than an entity referred to in paragraph (17)(b) if any of the following circumstances exist in relation to that entity in the year of income in which the distribution giving rise to the benefit is made, and not in relation to the taxpayer if:
(a) the entity is not an Australian resident; or
(b) the entity would not be entitled to any tax offset under Division 207 of the Income Tax Assessment Act 1997 because of the distribution; or
(c) the amount of income tax that would be payable by the entity because of the distribution is less than the tax offset to which the entity would be entitled; or
(d) the entity is a corporate tax entity at the time the distribution is made, but no franking credit arises for the entity as a result of the distribution; or
(e) the entity is a corporate tax entity at the time the distribution is made, but cannot use franking credits received on the distribution to frank distributions to its own members because:
(i) it is not a franking entity; or
(ii) it is unable to make frankable distributions.
Note: Where the distribution is made directly to the taxpayer, see subsections 204‑30(7), (8), (9) and (10) of the Income Tax Assessment Act 1997 for a list of circumstances in which the taxpayer will be treated as deriving a greater benefit from franking credits than another entity.
177EB Cancellation of franking credits—consolidated groups
Expressions to have same meanings as in section 177EA and Income Tax Assessment Act 1997
(1) Unless the contrary intention appears, expressions used in this section:
(a) if those expressions are defined in section 177EA—have the same meanings as in that section (subject to subsection (10) of this section); and
(b) otherwise—have the same meanings as in the Income Tax Assessment Act 1997.
This section and section 177EA do not limit each other
(2) This section does not limit the operation of section 177EA, and section 177EA does not limit the operation of this section.
Application of section
(3) This section applies if:
(a) there is a scheme for a disposition of membership interests in an entity (the joining entity); and
(b) as a result of the disposition, the joining entity becomes a subsidiary member of a consolidated group; and
(c) a credit arises in the franking account of the head company of the group because of the joining entity becoming a subsidiary member of the group; and
(d) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the credit referred to in paragraph (c) to arise in the head company’s franking account.
Bare acquisition of membership interests
(4) It is not to be concluded for the purposes of paragraph (3)(d) that a person entered into or carried out a scheme for a purpose mentioned in that paragraph merely because the person acquired membership interests in the joining entity.
Commissioner to determine no franking credit
(5) The Commissioner may make, in writing, a determination that no credit is to arise in the head company’s franking account because of the joining entity becoming a subsidiary member of the consolidated group. A determination does not form part of an assessment.
Effect of determination
(6) A determination under subsection (5) has effect according to its terms.
Notice of determination
(7) If the Commissioner makes a determination under subsection (5), the Commissioner must serve notice in writing of the determination on the head company.
Objections
(9) If a taxpayer to whom a determination relates is dissatisfied with the determination, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.
Relevant circumstances
(10) The relevant circumstances of a scheme include the following:
(a) the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding membership interests in the joining entity that are respectively borne by or accrue to the parties to the scheme, and whether there has been any change in those risks and opportunities for the head company or any other party to the scheme (for example, a change resulting from the making of any contract, the granting of any option or the entering into of any arrangement with respect to any membership interests in the joining entity);
(b) whether the head company, or a person holding membership interests in the head company, would, in the year of income in which the joining entity became a subsidiary member of the group or any later year of income, derive a greater benefit from franking credits than other persons who held membership interests in the joining entity immediately before it became a subsidiary member of the group;
(c) the extent (if any) to which the joining entity was able to pay a franked dividend or distribution immediately before it became a subsidiary member of the group;
(d) whether any consideration paid or given by or on behalf of, or received by or on behalf of, the head company in connection with the scheme (for example, the amount of any interest on a loan) was calculated by reference to the franking credit benefits to be received by the head company;
(e) the period for which the head company held membership interests in the joining entity;
(f) any of the matters referred to in subsection 177D(2).
Section to apply to exempting credits
(11) This section applies to exempting credits arising in the exempting account of the head company of a consolidated group in the same way that it applies to credits arising in the head company’s franking account.
177F Cancellation of tax benefits etc.
(1) Where this Part applies to a scheme in connection with which a tax benefit has been obtained, or would but for this section be obtained, the Commissioner may:
(a) in the case of a tax benefit that is referable to an amount not being included in the assessable income of the taxpayer of a year of income—determine that the whole or a part of that amount shall be included in the assessable income of the taxpayer of that year of income; or
(b) in the case of a tax benefit that is referable to a deduction or a part of a deduction being allowable to the taxpayer in relation to a year of income—determine that the whole or a part of the deduction or of the part of the deduction, as the case may be, shall not be allowable to the taxpayer in relation to that year of income; or
(c) in the case of a tax benefit that is referable to a capital loss or a part of a capital loss being incurred by the taxpayer during a year of income—determine that the whole or a part of the capital loss or of the part of the capital loss, as the case may be, was not incurred by the taxpayer during that year of income; or
(ca) in the case of a tax benefit that is referable to a loss carry back tax offset, or a part of a loss carry back tax offset, being allowable to the taxpayer—determine that the whole or a part of the loss carry back tax offset, or the part of the loss carry back tax offset, as the case may be, is not to be allowable to the taxpayer; or
(d) in the case of a tax benefit that is referable to a foreign income tax offset, or a part of a foreign income tax offset, being allowable to the taxpayer—determine that the whole or a part of the foreign income tax offset, or the part of the foreign income tax offset, as the case may be, is not to be allowable to the taxpayer; or
(da) in the case of a tax benefit that is referable to an innovation tax offset, or a part of an innovation tax offset, being allowable to the taxpayer—determine that the whole or a part of the innovation tax offset, or the part of the innovation tax offset, as the case may be, is not to be allowable to the taxpayer; or
(e) in the case of a tax benefit that is referable to an exploration credit, or a part of an exploration credit, being issued to the taxpayer—determine that:
(i) the whole or a part of a junior minerals exploration incentive tax offset that would otherwise be allowable to the taxpayer in relation to the exploration credit, or the part of the exploration credit, as the case may be, is not to be allowable to the taxpayer; or
(ii) the whole or a part of a franking credit that would otherwise arise in the franking account of the taxpayer in relation to the exploration credit, or the part of the exploration credit, as the case may be, is not to arise in the franking account of the taxpayer; or
(f) in the case of a tax benefit that is referable to:
(i) a refundable R&D tax offset; or
(ii) a non‑refundable R&D tax offset; or
(iii) a part of a refundable R&D tax offset; or
(iv) a part of a non‑refundable R&D tax offset;
being allowable to the taxpayer in relation to a year of income—determine that the whole or a part of the offset, or the part of the offset, as the case may be, is not to be allowable to the taxpayer in relation to that year of income; or
(g) in the case of a tax benefit that is referable to a CMPTI tax offset, or a part of a CMPTI tax offset, being allowable to the taxpayer—determine that the whole or a part of the CMPTI tax offset, or the part of the CMPTI tax offset, as the case may be, is not to be allowable to the taxpayer; or
(h) in the case of a tax benefit that is referable to a hydrogen production tax offset, or a part of a hydrogen production tax offset, being allowable to the taxpayer in relation to a year of income—determine that the whole or a part of the offset, or the part of the offset, as the case may be, is not to be allowable to the taxpayer in relation to that year of income;
and, where the Commissioner makes such a determination, he or she shall take such action as he or she considers necessary to give effect to that determination.
(2) Where the Commissioner determines under paragraph (1)(a) that an amount is to be included in the assessable income of a taxpayer of a year of income, that amount shall be deemed to be included in that assessable income by virtue of such provision of this Act as the Commissioner determines.
(2A) Where a tax benefit that is covered by paragraph 177C(1)(bc) has been obtained, or would but for this section be obtained, by a taxpayer in connection with a scheme to which this Part applies:
(a) the Commissioner may determine that the taxpayer is subject to withholding tax under section 128B on the whole or a part of that amount; and
(b) if the Commissioner makes such a determination, he or she must take such action as he or she considers necessary to give effect to that determination.
(2B) A determination under paragraph (1)(c) or subsection (2A) must be in writing.
(2C) Notice of the determination must be given to the taxpayer and, in the case of a determination under subsection (2A), to the person who paid the amount.
(2E) A failure to comply with subsection (2C) does not affect the validity of a determination.
(2F) If the Commissioner makes a determination under subsection (2A), the amount that the Commissioner determines is taken to be subject to withholding tax is taken to have been subject to withholding tax at all times by virtue of such provision of section 128B as the Commissioner determines.
(2G) If the taxpayer is dissatisfied with a determination under paragraph (1)(c) or subsection (2A), the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.
(3) Where the Commissioner has made a determination under subsection (1) or (2A) in respect of a taxpayer in relation to a scheme to which this Part applies, or the Commissioner has made a DPT assessment in respect of a taxpayer in relation to a scheme to which this Part applies, the Commissioner may, in relation to any taxpayer (in this subsection referred to as the relevant taxpayer):
(a) if, in the opinion of the Commissioner:
(i) there has been included, or would but for this subsection be included, in the assessable income of the relevant taxpayer of a year of income an amount that would not have been included or would not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income if the scheme had not been entered into or carried out; and
(ii) it is fair and reasonable that that amount or a part of that amount should not be included in the assessable income of the relevant taxpayer of that year of income;
determine that that amount or that part of that amount, as the case may be, should not have been included or shall not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income; or