Income and franking dividend

[Fab]

Hi,

I am participating in JST share buy back and I understand that 0.10 cents is considered as captial and the $3.80 are considered as franking dividend if as myself you elected a 14% discount.
My question relates to the franking dividend part, I am wondering if this amount is added at the end of the financial year to my taxable income . For example my end of year income is $50000 and I have a total of $10000 franking dividend. Does that mean that my total assessable income is $600000 ?

Cheers

 

[rozella]

Re: income and framking dividend

If your income is $50000 including dividends & your franking credits are $10000, then your taxable income is $60,000 which tax would be $2850 + (35000 x 0.30) = $13350 less the franking credit of $10000 = $3350 tax to be paid.

Tax rates 2006-07
$25,001 – $75,000
$2,850 plus 30c for each $1 over $25,000

Check with your accountant.

 

[rozella]

Re the above....remember that your total franking credits exceed $5000, so you are over the exemption amount, so you can only claim for those franking credits over 45 days clear of the buy & sell days.

 

[GreatPig]

the franking dividend part

This term is a little confusing. Do you mean "franked dividend" or "franking credit"?

A franked dividend is the amount of cash you receive along with some franking credit component. A franking credit is just the tax credit component for the company tax already paid.

If you received $10K of franking credits from fully-franked dividends, your total dividend received (ie. the cash part) would have been about $23,333 (the other 70% of the gross amount).

If the $10K was the cash component of a fully-franked dividend, then the franking credit would be about $4286.

Cheers,
GP

 

[Fab]

This term is a little confusing. Do you mean "franked dividend" or "franking credit"?

A franked dividend is the amount of cash you receive along with some franking credit component. A franking credit is just the tax credit component for the company tax already paid.

If you received $10K of franking credits from fully-franked dividends, your total dividend received (ie. the cash part) would have been about $23,333 (the other 70% of the gross amount).

If the $10K was the cash component of a fully-franked dividend, then the franking credit would be about $4286.

Cheers,
GP

Indeed I meant Franked dividend.
I guess I was asking the question as I am running a consulting business (sole trader) through my own company and every year I re-distribute as dividend payment to my wife some of the company profit. I wanted to know if by having to much franked dividend that would limit the amount of dividend I can pay my wife until it becomes less interesting typically above the 30% limit which is an income of $75 000. I guess the answer is yes.

 

[GreatPig]

Indeed I meant Franked dividend.

Okay, that part is clear.

every year I re-distribute as dividend payment to my wife some of the company profit.

From which I take it that your wife is a shareholder in your company, possibly the sole shareholder?

I wanted to know if by having to much franked dividend that would limit the amount of dividend I can pay my wife

Still not clear about this part. A company is a completely separate tax entity to its shareholders, and any franked dividends the company receives has no bearing on what dividends you can pay to your company shareholders.

When a company receives a franked dividend, it includes the gross amount as income and claims a tax credit for the franking credits, exactly the same as an individual does. However, since the company tax rate is 30%, and fully franked dividends are franked at 30%, a company would pay no tax on any fully franked dividends it receives.

When your company pays a dividend to its shareholders, it can (usually) also pay a fully franked dividend. The shareholders would then include the gross amount in their tax returns and claim a tax credit for the franking credits. However, the franking credits your company claims from the dividends it receives have no relationship to the franking credits it gives to shareholders when paying dividends.

until it becomes less interesting typically above the 30% limit which is an income of $75 000

That's where the 30% marginal rate cuts in, but the company rate is a flat rate. Personal income needs to be a bit over $100K pa to be paying more tax than a company.

GP

 

[hongwong]

Hi,

example my end of year income is $50000 and I have a total of $10000

Hey Fab

http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/31734.htm&page=9

Also note that u have to hold on to you shares for other 45 days if the amount is great then 5,000 for personal use or trust fund, super fund or company.

Otherwise u do not get the frank credits.

hongwong

 

[PhoenixXx]

Thx guys, really helpful.
A bit of research and to add up the spice, i happened to find this. Very detailed information and brief but clear examples.

http://www.ato.gov.au/content/downloads/NAT2632_07.pdf