Imputation credits

[ob1kenobi]

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

 

[xen88]

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?

 

[xen88]

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

 

[Craton]

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.

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.

 

[Smurf1976]

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.