Imputation Credits for Public Educational Institutions

Is the taxpayer, a public educational institution which receives a trust distribution, entitled under section 207-125 of the Income Tax Assessment Act 1997 (ITAA 1997) to a tax offset equal to the franking credit on that distribution?

Yes. The taxpayer, a public educational institution which receives a trust distribution, is entitled under section 207-125 of the ITAA 1997 to a tax offset equal to the franking credit on that distribution because it is an exempt institution that is eligible for a refund.

A trust is established for the benefit of the taxpayer as the sole beneficiary.

The taxpayer as beneficiary has a vested and indefeasible interest in all of the income of the trust estate for an accounting period.

The taxpayer is a public educational institution whose ordinary and statutory income is exempt from income tax.

The taxpayer is an endorsed deductible gift recipient under paragraph 30-120(a) of the ITAA 1997.

The taxpayer satisfies the residency requirements of section 207-135 of the ITAA 1997.

Subsection 207-125(2) of the ITAA 1997 provides that where a franked distribution flows indirectly to an exempt institution that is eligible for a refund, the institution is entitled to a tax offset equal to the amount of the tax offset to which the institution would have been entitled, if the exempt status of the institution were ignored.

Section 207-130 of the ITAA 1997 defines the only circumstances under which an entity will be an 'exempt institution that is eligible for a refund.

The income tax exempt entity must be: • a charitable institution which meets the requirements of subsection 207-130(2) of the ITAA 1997, • a deductible gift recipient which meets the requirements of subsection 207-130(3) of the ITAA 1997, • a specified deductible gift recipient which meets the requirements of subsection 207-130(4) of the ITAA 1997, • an exempt relief fund which meets the requirements of subsection 207-130(5) of the ITAA 1997, or • prescribed as an exempt institution that is eligible for refund by the regulations (subsection 207-130(6) of the ITAA 1997).

Under subsection 207-130(3) of the ITAA 1997, an entity endorsed under paragraph 30-120(a) of the ITAA 1997 and which satisfies the residency requirements of section 207-135 of the ITAA 1997, is an exempt institution that is eligible for a refund.

The taxpayer is an entity endorsed under paragraph 30-120(a) of the ITAA 1997, and satisfies the residency requirements of section 207-135 of the ITAA 1997. Accordingly, it is an exempt institution that is eligible for a refund, and is therefore entitled under section 207-125 of the ITAA 1997 to a tax offset equal to the franking credit on the distribution it receives.