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EXPLAIN THE FRANKING CREDITS FOR NOT-FOR-PROFIT ENTITIES

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24
May

Franking Credits also known as Imputation Credits are a type of tax credit which allows companies to pass on tax paid at the company level to shareholders. Usually, company pays tax on their income and from the net income they allocate a certain amount as dividend for shareholders. Whenever a shareholder receives dividend, tax already has been paid on that dividend amount as company paid tax to gain that amount. So, when an individual lodges his/her tax return, he/she shows this dividend income plus the additional credit (franking credit) which is paid by company as tax to gain this amount.

Following organisations may be eligible for franking credits: 

  • Registered charities that are exempt from income tax; 
  • Deductible gift recipients (DGRs); 
  • Developing country relief funds;
  • Exempt institutions that are eligible for a refund under a Commonwealth law other than the income tax law.

Non-profit organisations are considered as tax exempt, so they have no tax liability. A question will always arise, how a non-profit organisation off-set franking can credit! In order to do that, there are some provisions for companies or individuals that enable non-profit organisations to get the franking credits as cash payment. If a non-profit organisation wants, they can also pass their franked dividends through other entities.

Refund of franking credit is provided by ATO at the end of each income year through a package to entities that applied for. The package needs to be completed and returned to the ATO for getting the refund to be paid.

There are some eligibility requirements to get the refund as a non-profit organisation which are as follows:

  •  Organisation must have ABN, Resident status and be one of the following: 
  • A charity which must be registered and endorsed by ATO to access income tax exemption; 
  • Endorsed by ATO as a deductible gift recipients (DGR) in its own right; 
  • Named as a DGR in the Income Tax Assessment Act 1997.

 


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