Income Tax (Franking Deficit) Amendment Act 1995

Overview

The Income Tax (Franking Deficit) Amendment Act 1995, assented to on 16 December 1995, was introduced by the Parliament of Australia to address a gap in the existing legislative framework regarding the taxation of franking deficits. The primary purpose of this Act is to amend the Income Tax (Franking Deficit) Act 1987, specifically updating the imposition of tax related to franking deficits to align with changes in the Income Tax Assessment Act 1936. This amendment ensures that the taxation rules for franking deficits are correctly and effectively implemented in the current legislative environment. The Minister's second reading speeches in the House of Representatives and the Senate on 24 October and 13 November 1995 respectively, highlight the intent to streamline and update the tax laws to reflect recent changes and maintain fiscal integrity.

Scope and Application

The Income Tax (Franking Deficit) Amendment Act 1995 applies to taxpayers who are subject to the provisions of the Income Tax Assessment Act 1936, particularly in relation to the imposition of tax on franking deficits. This Act amends the Income Tax (Franking Deficit) Act 1987 to clarify and update the tax implications arising from franking deficits, ensuring that taxpayers are appropriately taxed on these deficits as per the specified provisions. The amendment is designed to provide a clear and definitive legal framework for the imposition of tax on franking deficits, thereby ensuring compliance and proper taxation. The geographic reach of this Act is nationwide, as it pertains to federal taxation laws, impacting entities and individuals across Australia. The Act does not specify any particular exclusions or exemptions but operates within the broader parameters of the Income Tax Assessment Act 1936. The application of this Act is not restricted by any jurisdictional boundaries within Australia, thus it applies uniformly across the Commonwealth. The Act may be further extended or detailed through subordinate instruments, which would provide additional regulations or clarifications to ensure effective implementation of the tax provisions on franking deficits.

Key Provisions

The main operative sections of the Income Tax (Franking Deficit) Amendment Act 1995 (section 3 of the Schedule) concern the amendment of the Income Tax (Franking Deficit) Act 1987. Specifically, section 3 repeals the existing section and substitutes a new provision which states that the tax payable under section 160AQJ of the Income Tax Assessment Act 1936 is imposed (section 3 of the Schedule). This change is intended to ensure that the tax on franking deficits is correctly levied and collected. The Act imposes obligations on entities subject to the tax on franking deficits. These entities are required to ensure they are complying with the new tax provisions, which involve the calculation and payment of tax on the unfranked portions of dividends received from Australian companies. The amendment specifies that the tax is imposed under section 160AQJ of the Income Tax Assessment Act 1936, aligning the franking deficit tax with the broader tax framework. Breaching the provisions of the amended Act could result in significant legal consequences. Section 160AQJ of the Income Tax Assessment Act 1936 includes penalties for non-compliance, which can include fines and interest on unpaid tax. The maximum penalties depend on the nature and severity of the breach, but can be substantial, reflecting the seriousness with which the Australian Taxation Office (ATO) treats tax evasion and non-compliance. Additionally, repeated or deliberate breaches could lead to more severe criminal charges, including prosecution for tax fraud.