# Imputation credits



## Kaizen (2 August 2005)

Hi Guys,

This is my first post so I thought I would make it a good one.

Does anybody now how to calculate imputation credits on dividends? I have an excel sheet that calculates unfranked amount, franked amount and total dividend but am not sure of the calculation for imputation credits. Any insight would be great full. I know it has to do with the company tax rate but have not been able to figure it out.

Thanks!


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## RichKid (2 August 2005)

*Re: Inputation credits*



			
				Kaizen said:
			
		

> Hi Guys,
> 
> This is my first post so I thought I would make it a good one.
> 
> ...




Hi Kaizen, 
Welcome to the forums!
If you do some searching (search tool link near top of page) here on ASF you'll find this topic discussed at length, maybe you can post in the thread you find- good luck.


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## GreatPig (2 August 2005)

*Re: Inputation credits*

Kaizen,



			
				Kaizen said:
			
		

> Does anybody now how to calculate imputation credits on dividends? I have an excel sheet that calculates unfranked amount, franked amount and total dividend but am not sure of the calculation for imputation credits.



The imputation or franking credit is just the amount of tax already paid by the company that is distributed with the dividend. A fully-franked dividend would carry a 30% franking credit, meaning the cash you receive would be the other 70%.

So the unfranked amount has no franking credit, and the franked amount has a 30% franking credit, with the cash amount of that part of the dividend being the other 70%. To calculate the amount of the franking credit, multiply the received franked amount by 30/70.

eg: If you receive $140 franked dividend, the franking credit is 140 x (30/70) = $60.

GP


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## Happy (3 August 2005)

*Re: Inputation credits*

Hope my question fits here well.

If dividends are paid today 3.Aug.05 to be able to claim Franking Credit Imputation we need to hold shares for 45 days if dividends exceed certain level.

Is a today 0 and counting starts from tomorrow or today is day 1?

To be safe than sorry I used the first one, but curious if I am too cautious.


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## rozella (3 August 2005)

*Re: Inputation credits*

G'day Happy,

It is 45 days plus the buy & sell days.....so 45 days clear of the buy & sell days.

See this link for the 45 day rule re exemption45 day rule


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## Happy (4 August 2005)

G’day Rozella,
Thank you for link.

Explanation on the ASX page is not bad, but their example said that person held shares for 20 days and is not entitled, well no problems there, but they still did not give timeline example, so my interpretation is probably correct.
Ex-dividend day is day 1, I have to hold for 45 days and on day 46 I can sell shares
So for 3Aug05 ex day 4Aug05 is day 1, 
31Aug05 is day 28
17Sep05 is day 45
18Sep05 is first day when penalty is not applied if ordinary shares are sold.

Hope my dates are correct.


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## money tree (4 August 2005)

An accountant told me that the ATO does not bother checking the holding period, unless the person is using so many franking credits that they pay no tax. This is because 99% of the time, those who are getting $11,669 in divs would need to have around $300k invested....and if you did its likely to be long term holdings, so no need to worry about the $5k 45 day rule.


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## rozella (4 August 2005)

G'day Happy,

It does not matter which consecutive 45 days they are held, as long as you are holding them at the close the day before exdiv date.

Quote from the ASX page







> All this means is that you must own shares for at least 45 days, or 90 days for preference shares (not counting the day of acquisition or disposal), before being entitled to any franking tax offset.



So providing you hold them for any consecutive 45 days overlapping the close prior to exdiv day without calculating the buy or sell days in the 45 days.

rozella


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## Happy (4 August 2005)

G’day Rozella,

Glad I asked, as I thought that counting starts from the Ex-dividend date.
So it looks I can buy shares say 50 days before the Ex-dividend date, sell the next day and keep the credit.

Does that also mean that I can sell during Ex-dividend day?


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## rozella (4 August 2005)

You can buy on the close the day before exdiv, & sell on the open on exdiv day to be entitled to the dividend, but to get the fc you need to hold for the 45 days etc.  If as you say bought 50 days prior to exdiv, you can sell on the open on exdiv day & be entitled to the div + fc.....so yes you can sell on exdiv day & keep entitlements.


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## Happy (4 August 2005)

Rozella,

Thanks a lot for clarification, for some reason I had it wrong for couple of years now.


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## money tree (4 August 2005)

happy, are you getting more than $10,000 a year in divs?


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## Kaizen (4 August 2005)

*Re: Inputation credits*



			
				RichKid said:
			
		

> Hi Kaizen,
> Welcome to the forums!
> If you do some searching (search tool link near top of page) here on ASF you'll find this topic discussed at length, maybe you can post in the thread you find- good luck.




Yes I know where the search tool is. Also if you did a search for impuation credits you would see that none of them answer the question I asked. So from what I see that have not been discussed in length.

I want info on the impuation credits not the franking credits.


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## Kaizen (4 August 2005)

*Re: Inputation credits*



			
				GreatPig said:
			
		

> Kaizen,
> 
> 
> The imputation or franking credit is just the amount of tax already paid by the company that is distributed with the dividend. A fully-franked dividend would carry a 30% franking credit, meaning the cash you receive would be the other 70%.
> ...




Hi GP,

I think we are close but not quite there.

If I get a dividend for $0.50 x 1000 = $500 total dividend.
With a company rate of 10% ( Just for example) and the dividend franked at 70%.

the results will be:
Unfranked $150
Franked $350
Imputation = $38.89 - How is this calculated? I got this figure from a portfolio manager program.
Total Dividend = $500

If I use your formula above I get 500 x (10/70) = $71.42

Any ideas?

Thanks.


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## GreatPig (4 August 2005)

*Re: Inputation credits*



			
				Kaizen said:
			
		

> If I get a dividend for $0.50 x 1000 = $500 total dividend.
> With a company rate of 10% ( Just for example) and the dividend franked at 70%.
> 
> the results will be:
> ...



Forget the 70% franked part. That just gives you the $350 franked and $150 unfranked components ($500 x 0.7 = $350).

With a company tax rate of 10%, the cash amount of the dividend is the other 90%, so to work out the franking credit:

franking credit = (franked dividend) * 10/90

For $350, that gives 3500/90 = $38.89

To make the formula more general, you would say:

franking credit = (franked dividend amount) * (company rate) / (100 - company rate)

where "company rate" is a percentage.

GP


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## Kaizen (4 August 2005)

Thanks. GP.

Solved my issues.


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## money tree (4 August 2005)

"I want info on the impuation credits not the franking credits."

they are the same thing!


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## RichKid (26 September 2005)

*Re: Installment Warrants paying dividends at 0*



			
				The Estimator said:
			
		

> Thanks for the link MT. I did a search before starting this thread but didn't find anything.  The only question I have is regarding the fc's.  If the warrant expires within the 45days how is it that you can factor fc's into the profit.  I think I need to read up on this 45day holding rule.  If I can somehow get the fc while trading warrants that expire within 45 days of exdiv then it would be a nice little low risk money spinner.  Though I dont imagine these come up to often.
> 
> John



Hi John, I think that if you get over $5k a year in divs you need to hold for 45 days- or something like that, post any further questions and people should help out if they haven't answered the question already.


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## money tree (26 September 2005)

*Re: Installment Warrants paying dividends at 0*

99% of people need not worry about the $5k rule. To get $5k in franking credits, you need to have $11,667 in dividends.......which means you would need to have a $300k portfolio

if you have that kind of money to play with, quit being a tightass, and pay for good advice!


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## The Estimator (26 September 2005)

Hehe.  I'm lucky to get 3K together let alone 300K.  I thought the 45 day rule applied to everyone.  I didnt realise it was only applied to those that have earnt over 5K in fc's.  I'm only new to trading.  I'm gonna go have a read of the info on the 45 day rule.

Cheers,

Dazed & Confused


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## ob1kenobi (26 September 2005)

Read the ATO publication entitled "You and Your Shares 2004-2005". You should find it at this link.

http://www.ato.gov.au/individuals/content.asp?doc=/content/57285.htm


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## xen88 (27 March 2021)

Does franking credits/imputation mean the tax that is paid by the company so when you do your tax return you don’t have to pay the tax?


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## xen88 (27 March 2021)

How come there are some companies that pay franking credits and some dont? What are the benefits for them or for investors?


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## Craton (27 March 2021)

xen88 said:


> Does franking credits/imputation mean the tax that is paid by the company so when you do your tax return you don’t have to pay the tax?



Briefly.
Dividends are usually paid out from profits so company tax is already paid on that profit and whatever the tax rate is for that company
Dividends paid out are income so any input tax credit from franked (partially or fully) is accounted for in your income tax return. Tax on income is at your relevant income tax rate.


xen88 said:


> How come there are some companies that pay franking credits and some dont? What are the benefits for them or for investors?



Again briefly.

Again, dividends are usually paid out from profits.
Paying out franked, partially franked or unfranked dividends is at the discretion of the company, some may choose to not pay any dividend and inject profits back into the company.

Depending on how one minimizes tax, higher income earners would benefit from the input tax credits franked and partially franked divs provide, whereas low income earners would benefit more from unfranked divs.

Note that unfranked divs have no input tax credits as no tax has been paid hence, income from unfranked divs means paying tax at your individual tax rate on that income.

There is far more to dividends including pay out ratio's as a percentage of profit but that's the gist for what you've asked.

The ATO is a good place to start for more information.


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## Smurf1976 (27 March 2021)

xen88 said:


> Does franking credits/imputation mean the tax that is paid by the company so when you do your tax return you don’t have to pay the tax?



In short it means the company has taken tax out of your dividend at the Company Tax rate (30%) but the actual amount of tax you are required to pay is determined by the Income Tax scales.

If your rate is above 30% then you'll need to pay the extra, if it's lower then you'll get a refund.

Same concept as an employer deducting tax from workers' pay and handing that money to the ATO. If they take out too much then you get a refund, if they take out too little then you'll have to pay the ATO the rest. 

But yes, it means an amount of tax has been paid.


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