Tax on franked dividends...

[APINDEX]

Hi All,

I have a question about franking credits.

I understand that all dividends will count as income and will add to my taxable income by the grossed up dividend amount? and then I will get a tax credit for the franking credits..

right now I am working buts just as an example say in the future I am not working and living from dividend income stream say I received 200K for example in fully franked dividends if this was my only source of income I would be in the top tax bracket ..

when I put into calculator online says credit would be approx 85K from 200K Dividends if they were fully franked so.. do I then add 85K to 200K work out income tax then take of 85K?

am I getting this right?

Thanks

 

[galumay]

I think so! Your dividend statements show you the gross dividend anyway, so in effect if the only income you have is dividends, and assuming they were all fully franked, you would have a tax credit of 30% on the gross dividends. In your example, $285k of gross dividends would have aready had $85K of tax paid, so your taxable income would be $285K - and without doing the sums you would owe quite a bit more because your total tax rate will be higher than 30%.

EDIT - I reckon tax on $285K would be about $110K so you would owe an extra $25K roughly. (very back of envelope calculation)

 

[APINDEX]

Hi Galumay,
tanks for your response if I put 285K income into simple ATO calculator I get tax is 101K so wouldn't I then get the credit on that amount of tax to pay?? i.e if I was earning interest from bank account of 285K I would have to pay 101K tax so shouldn't I pay less as my franking credits would be applied to this amount?

 

[galumay]

Yep, I got nearer $110K but either way, as I said the balance is what you will owe, so if its $101K you will still owe 101-85=$16K

 

[APINDEX]

Thats what I thought but thought I might be mistaken so if I had approx 200K franked div income I would pay approx 16K tax??? or 16K additional??
sorry If I am not getting this but seems total tax payable is pretty low??

 

[galumay]

$16K additional, you have already paid $85K in your franking credits - thats what they are, tax paid on your behalf.

 

[APINDEX]

Thanks Galumay..

Looking at this example online

http://www.mymoneycalculator.com.au/dividends-franking-credits-explained-including-formula

If I apply that to my example all approx figures..

Income Dividend - $200,000
Franking Credits - $85,000
Taxable Income - $285,000
Tax Payable - $110,000
Franking credits - $85,000
Tax Payable - $25,000

 

[galumay]

ummm...isnt that exactly what I suggested was the amount in my original reply??!!

 

[APINDEX]

yes exactly what you said my interpretation was incorrect as thought there was additional tax payable i.e in the above example I would pay total of 25K in tax if the dividends were my only income thanks very much for your help..