Dividend Franking Credits

Written on the 23rd of July 2010 by Alan Maddick / AAAFI

What about Franked Dividends and Franking Credits?

 Franking of dividends is a major reason why investment in share trusts and direct shares can make so much sense. When you also consider that many companies pay fully franked dividends of around 4% or 5% this compares very well with current fixed interest returns. Shares carry more short term capital risk but on a long term basis have historically provided superior income and capital growth than other asset classes in most time periods. Shares in Australian companies that pay tax at the 30% company rate, have $428.57 of franking credits for every $1,000 of dividends they pay out. These franking credits are basically a credit for tax already paid by the company. Franking can be used to reduce your tax liability and any excess franking credits are refunded to you. A shareholder on the 30% tax rate can essentially receive these franked dividends tax free. A shareholder on a 15% marginal tax rate or any franked dividends received by a Self Managed superfund will receive a refund of $215 for every $1,000 of fully franked dividends received. This credit can also be used to offset the tax from other income. Talk to your adviser about dividends & Franking Credits