Franking Deficit Tax: due date for payment when entity joins consolidated group

Will the franking deficit tax liability become due and payable pursuant to subsection 214-150(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where an entity joining a consolidated group has a franking account debit balance immediately before the joining time?

Yes. The franking deficit tax liability will become due and payable pursuant to subsection 214-150(1) of the ITAA 1997 where an entity joining a consolidated group has a franking account debit balance immediately before the joining time.

The taxpayer's franking account was in deficit at the time when it became a wholly owned subsidiary of a company which intends to form a consolidated group.

It is intended that the consolidated group will be formed with a date of effect preceding the date on which the acquisition of shares in the taxpayer was completed. That is, the taxpayer company will be taken to have joined an existing consolidated group.

Paragraph 709-60(3)(b) of the ITAA 1997 causes a joining entity to become liable to franking deficit tax where its franking account is in deficit just before the joining time. The joining entity is liable to pay franking deficit tax as if the joining entity's income year had ended just before the joining time.

Subsection 214-150(1) of the ITAA 1997 provides that franking tax assessed for a corporate tax entity because of events that have occurred, or are taken to have occurred, during an income year is due and payable on the last day of the month immediately following the end of the income year.

Subsection 995-1(1) of the ITAA 1997 provides the basic meaning of income year as given by subsections 4-10(2) and 9-5(2) of the ITAA 1997.

According to the definitions provided by subsections 4-10(2) and 9-5(2) of the ITAA 1997, a company's income year will, in general terms, be either the financial year or a substituted accounting period.

Therefore, the franking deficit tax liability arising where an entity joining a consolidated group has a franking account debit balance immediately before the joining time becomes due and payable on the last day of the month immediately following the end of the relevant income year under subsection 214-150(1) of the ITAA 1997.