As a result of the reduction to the Company Tax Rate to 27.5% for Small Businesses in the 2017 Financial year, the ATO has advised that dividends will only be able to be franked at 27.5% rather than 30%.
This is a change to their previous position and will impact on Small Businesses who have already issued Dividends and provided Dividend Statements to their shareholders showing a 30% Franking Credit. This law was only recently passed on 19 May 2017 so it is likely all dividend statements issued since 1st July 2016 will show a 30% rate and will therefore be incorrect.
As the small business turnover has also increased to $10m (from $2m) for the 2017 FY, any businesses with a turnover up to $10m may be affected by this.
The ATO have issued a Draft Practical Compliance Guideline on 22nd May 2017 which provides two options for dealing with this:
Written Notification informing members – the company is able to write to shareholders informing them of the correct franking credit they are entitled to. There is no need to reissue the distribution statement under this option. The notice is required to be provided in the same manner as the dividend statement (e.g. electronically).
The notice should indicate that the distribution statement previously provided was incorrect and should contain the following details:
a) name of the entity making the distribution
b) date on which the distribution was made
c) amount of the distribution
d) revised amount of franking credit allocated to the distribution, rounded to the nearest cent
e) franking percentage for the distribution, worked out to two decimal places
f) amount of any withholding tax deducted from the distribution
g) name of the member
Amended Distribution Statement – the company may apply to the Commissioner for permission to amend the distribution statement. If granted, you are able to provide members with a new distribution statement.
We would suggest using Option 1 in most cases.
If you would like to discuss this further, please contact our office.
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