Franking account deficit resulting from COVID-19

Some entities may have received a refund from varying their PAYG installments because of the effects of COVID-19. This may result in the franking account balance being in deficit at the end of the 2019–20 financial year. The Commissioner cannot waive or remit the franking deficit tax (FDT) liability under the law.

If the franking account balance is in deficit at the end of the 2019–20 financial year, you must:

• lodge a franking account tax return
• pay the FDT liability by the last day of the month immediately following the end of the financial year.

The FDT liability will generally be due by 31 July 2020. The ATO will consider a deferral of the payment up to 30 September 2020.

While the FDT liability cannot be waived or remitted, it can be claimed as a tax offset. In some circumstances, the available tax offset may be reduced by 30 per cent unless the Commissioner exercises the discretion to not reduce the available offset.

If the deficit in your franking account was due to the unexpected downturn in your business directly related to COVID-19, and the deficit relates to franked dividends paid before 1 March 2020, the Commissioner will allow a franking entity to manage their tax affairs as if the Commissioner has exercised the discretion to not reduce the available tax offset. In these circumstances, the full amount of the tax offset entitlement created by the franking deficits tax liability will be available to the franking entity.