05/03/2020
Company Franking Credits
Companies pay dividends to shareholders from profits previously taxed, expressed as a dividend rate per share.
The shareholders then declare the dividend as assessable income in their tax returns and receive a rebate called
a franking (imputation) credit on the tax previously paid by the company, to prevent double taxation.
The dividend is “grossed up” with the franking credit based on the company tax rate which is then available to
offset the overall tax liability of the taxpayer, with any excess refundable if their marginal tax rate is less than the
company tax rate (subject to various tax offsets, Medicare levy, HELP repayments etc).
The company tax rates for 2018/2019 are as follows:
Turnover under $50M and running active business: 27.5%
Turnover $50M or above: 30%
Example:
John owns 10,000 shares in a company that is subject to the 30% tax rate. During the 2018/2019 year the
company paid a total dividend of $2 per share.
John’s total dividends would be 10,000 shares X $2 per share = $20,000.
The franking credit would be worked out as follows (in rounded figures):
$20,000 X 30/70 = $8,571
The “grossed up” (assessable) dividend would be:
$20,000 + $8,571 = $28,571.
The $8,571 imputation credit would be offset against John’s other taxation liabilities, with any excess possibly
refundable to him.
As can be seen above, in general investing in companies paying franked dividends can be a useful tax planning
strategy for people in tax brackets lower than the corporate tax rate, subject to qualified investment advice.
For further information, please call Peter Varju on 043 1133550.
