Question

Facts

Favour Pty Ltd is a large private company for tax purposes. Favour Pty Limited has three shareholders, including one foreign resident. Favour Pty Limited's corporate tax rate is 30%.

The first dividend it pays in 2020/21 is $700 on 20 August 2020 and the dividend has an imputation credit of $150 attached to it. On 15 December 2020, the company pays a dividend of $2,100.

Question

(1) What amount of imputation credit should Favour Pty Ltd attach to the dividend it pays on 15 December 2020 so that it does not breach the benchmark franking rule.

(2) The tax consequences for Favour Pty Ltd if it attaches imputation credit totalling $210 on the 15 December 2020 dividend payment (assume Favour Pty Limited has sufficient franking account balance).