Dividend franking credits

My understanding...

Companies taxable income is $10m, they must pay $3m company tax to ATO.

This $3m can only be distributed to shareholders via fully franked dividends...otherwise it has absolutely no use to anyone whatsoever. If not used in current year it can be carried forward indefinitely.

The company can

a) pay a $7m unfranked dividend to shareholders. Shareholders receive $7m cash in bank account with no franking credits. Shareholder is taxed on $7m with no franking credits to deduct from tax they have to pay.

b) pay a $7m fully franked dividend to shareholders. Shareholders receive $7m cash in bank account and a $3m franking credit. Shareholder is taxed on $10m, and $3m franking credit is deducted from amount of tax they pay.

 

I posted the facts Bas, the tax free component of your super, is passsed on tax free, the taxable component is taxed at 15% + medicare levy before it is distributed to the estate.

The post you put up was actually dishonest, if the reporter new the facts and if she didn't she shouldn't write a story on a subject she obviously has very little understanding of.

My guess is it was written to deceive, because even someone with a basic understanding,
knows the basic rules.

 

Politics and arguments for or against this policy aside, the logical implications are that investments which pay franked dividends are about to lose capital value relative to those which pay unfranked dividends.

A classic case of taxation distorting the underlying market.

There are ways around it in practice, just don’t invest in anything paying franked dividends unless the yield is high enough to stack up, but the principle is just silly really.

 

Not that im special but the above ^ could very well be the scenario i find myself in soon, i was planning on living on my investments outside super for a couple/few years and working casually a bit here and there, earning maybe 12K in wages, 6 or 7K trading profits and 6 or 7 K in dividends.

Losing the credits would be a hit to the bottom line, would end up being like a 8% pay cut on a very modest yearly income, options would be few - i dont like the idea of being forced out of the market and having the control of my money taken away from me and given to industry morons.

 

You are the exact situation that seems so wrong to me.

I've said all I can say on it really. It's a policy that hits those in situations like yours harder than anyone else.

 

Basilio,

I still cant find any info in these documents or on Grattan website that they are using the ABS survey.

They are declaring it is their interpretation of the survey though.

Whats your thoughts about this?

cheers

 

You're telling me that BHP isn't paying company tax?

 

TL I'm not sure what you are missing. When you look at the bottom of the graphs I used it says
"Source - Survey of Income and Housing 2014-5; Grattan Analysis." The ABS survey which they used for their research can be found here http://www.abs.gov.au/household-income.

The information comes from the survey. It is put into graphical form by the researchers

View attachment 92028 View attachment 92029 View attachment 92030

 

TL you can go the Grattan website and see their assurance and cross checking of research projects they undertake. They don't just let a couple of people loose to write up a paper and then publish.

The papers are checked internally and externally through other research bodies who check the data and critique the accuracy of the figures.

https://grattan.edu.au/about-us/quality-assurance/

 

Why would someone go to the Grattan institute? They are as unbiased as the Murdoch press.IMO

 

Is there an external group for finance/economic matters

 

According to the Murdoch Press.
Great article in the Age today from Chris Pyne.

 

It appears, given all the bolding, that you have something against the same tax scale being applied to investment income as to earned income. I don't understand why that is, but surely what you want is to change the tax scales then?

Otherwise, someone who doesn't work but gets $10k/year in rent on an investment property pays absolutely nothing in tax and gets the full $10k, while someone who currently earns $10k on BHP shares will in future earn only $7k. How is that massive market distortion a good thing? Why do you want yet another force artificially inflating the property market?