Declaration regarding the extent of franking of a dividend

If a resident company does not make a declaration under subsection 160AQF(1AAA) of the Income Tax Assessment Act 1936 (ITAA 1936) that a dividend is a franked dividend to the extent of a specified percentage, is the dividend an unfranked dividend?

Yes. If a resident company does not make a declaration under subsection 160AQF(1AAA) of the ITAA 1936 that a dividend is a franked dividend to the extent of a specified percentage, the dividend is an unfranked dividend.

A resident company paid frankable dividends to their shareholders.

There was an agreement between the shareholders that the dividends would be franked. However, the dividends were not paid under a resolution.

The company did not make a declaration that the dividends paid are to be franked dividends to the extent of a specific percentage.

The company maintains a class C franking account.

The Dividend Distribution Statement provided to each shareholder when the dividends were paid stated that the dividends were unfranked.

Subsection 160AQF(1AAA) of the ITAA 1936 provides that: • if a frankable dividend (the 'current dividend') is paid to a shareholder in a company that is a resident at the time of payment, and • if the current dividend is not paid under a resolution, and • the company makes a declaration before the reckoning day for the current dividend that the current dividend is a class C franked dividend to the extent of a percentage (not exceeding 100%) specified in the declaration;

then the current dividend is taken to have been class C franked to the extent of the amount worked out using the formula: Current dividend x Specified percentage Where: 'current dividend' means the amount of the current dividend, and 'specified percentage' means the percentage specified in the declaration in relation to the dividend.

The 'reckoning day' is defined in section 160APA of the ITAA 1936 to be the day on which the dividend is paid.

The company failed to make a declaration for the purposes of subsection 160AQF(1AAA) of the ITAA 1936 as to the extent of a percentage that the dividend was a class C franked dividend. The percentage specified in the declaration is used to work out the franked amount of the dividend. As no percentage has been specified there is no franked amount of the dividend.

Section 160APA of the ITAA 1936 defines an 'unfranked dividend' as a dividend no part of which has been franked in accordance with section 160AQF of the ITAA 1936.

Accordingly, as the company has not made a declaration as required under subsection 160AQF(1AAA) of the ITAA 1936 that a dividend is a franked dividend to the extent of a specified percentage, the dividend is an unfranked dividend.