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Franked vs. unfranked dividends

Discussion in 'Beginner's Lounge' started by henno6x6, Apr 9, 2012.

  1. henno6x6

    henno6x6 Member

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    Im just trying to get my head around the difference in dividends franked vs unfranked and how they will affect me.

    this year my income is about 65-70k, tax paid about 16k however my taxable income includes car allowance and can claim about 30k or so. This year i think my refund is about 11k.

    so if i look at 2 different shares one is fully franked one unfranked. $2.00 share price paying $0.12.

    now on the date payable would i receive the $0.12 per share from both?

    would i be right in saying that i would get some extra back from the shares that are fully franked and have to pay some tax on the unfranked shares at the end of the financial year.
     
  2. McLovin

    McLovin Well-Known Member

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    Yes

    Fully franked shares have had Australian company tax deducted (30%). So in the investor's hands the actual income is treated as being the pre-tax amount. Example, company pays $0.70 dividend having already paid 30% company tax. This amount is then "grossed up" to its pre-tax amount, in this instance it would be $1. The ATO then taxes you based on this $1 but with 30% tax already deducted. If your marginal tax rate is above 30% then you pay the difference, if it's below then you get a refund for the difference.
     
  3. HarryH

    HarryH Active Member

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    Franked, in simple terms is like as if you prepaid tax at 30% of the gross dividend received. That is before the due date of your annual tax lodgment, which you can use as an offset to tax payable. Kind of like PAYG instalments.

    Unfranked on the other hand is pretty much like receiving the gross dividend without prepaid tax on it.

    For this reason I prefer unfranked dividends as I feel it is like as if I have that money in my hands before having to pay the tax on it and may work better in the compounding long-term if that's your investment strategy. But then again if you receive to much unfranked dividends then you will probably be put on the ATO's PAYGI system anyway.
     
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