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Unfrankable Distributions from Share Capital Account: A distribution is unfrankable if it is sourced, directly or indirectly, from a company’s share capital account. 3 This applies to distributions that constitute a reduction or return of share capital, even if labelled as a dividend. 4 The definition of a share capital account includes an account a company keeps of its share capital, or any other account where the first amount credited was share capital. 5 Therefore, any portion of a selective buyback that is a return of share capital cannot be franked.
Benchmark Franking Percentage: A corporate tax entity franks a distribution by allocating a franking credit to it. 6 The benchmark franking percentage is a key concept in determining the maximum franking without penalty. If an entity franks a frankable distribution at a percentage that exceeds its benchmark franking percentage for the franking period, it is liable to pay over-franking tax. 7 This effectively sets the benchmark franking percentage as the maximum franking allowed without incurring a penalty.
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If a trustee has a power to change the beneficiaries under a trust and exercises that power, does it cause a CGT event to occur?
In Short: A trustee's valid exercise of a power to change beneficiaries under a trust generally does not cause a Capital Gains Tax (CGT) event to occur, specifically CGT events E1 or E2, unless the change terminates the existing trust and creates a new one, or causes an asset to be held under a separate charter of obligations.
Relevant Legislation: Income Tax Assessment Act 1997 (Cth), s 104-5 — provides a summary of CGT events, including E1, E2, E5, E6, E7, E8, and A1.
Relevant Case Law and Ruling: TR 2018/6 — confirms that amending a trust's vesting date through a valid exercise of power in a trust deed or court approval does not trigger CGT event E1.
CGT Events E1 and E2: A change in the terms of a trust, including the addition or exclusion of beneficiaries, pursuant to a valid exercise of a power in the trust deed, will generally not cause CGT event E1 or E2 to happen.
CGT Event E5: CGT event E5 occurs if a beneficiary becomes absolutely entitled to a CGT asset of a trust as against the trustee. For a beneficiary to be absolutely entitled, they must have a vested and indefeasible interest in the entire trust asset and the right to call for its transfer.
CGT Events E6 and E7: CGT event E6 happens if a trustee disposes of a CGT asset to a beneficiary in satisfaction of an income right, and E7 happens for a capital right.
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Tax lawyers cannot afford AI that invents case citations. Cyter Tax is built with the opposite premise: citations are the product. Every response cites real provisions and real cases, with verbatim quotes and paragraph numbers, verified against the source before the response is returned.
Cyter's citation format mirrors the structure legal practitioners already use. Statute citations include the Act name, section number, and a quoted passage: "Income Tax Assessment Act 1936 (Cth), s 109N (quoting: 'the agreement that the loan is made under is in writing before the company's lodgment day')". Case citations include the case name, neutral citation, paragraph number and verbatim quote. Academic and ATO citations follow the same pattern.
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For case law, Cyter's corpus covers the High Court of Australia, Federal Court (first instance and full court), selected state Supreme Courts and the Administrative Review Tribunal, focused on matters relevant to Commonwealth taxation. New decisions are added as they are published.
For statutory interpretation questions, Cyter applies standard Australian interpretation principles: section 15AA of the Acts Interpretation Act, purposive construction, the role of extrinsic materials under section 15AB. Where rulings conflict with case law, Cyter surfaces both.
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