Fully franked shares and dividends

123enen · 23 April 2006

Hi RichKid.
No the “job” is just employment.( no reference to use of warrants in his example )
The person earns $10,000 from other employment. The person also receives a $5,000 dividend with a $2,000 attached franking credit.
This makes the persons total income $17,000.
Chreen calculates that this person would pay $1,870 tax on the $17,000 taxable income.
The $2,000 franking credit is then applied as a rebate against the $1,870 tax that was payable and the person gets a tax refund of $130.

He also calculates that if you had income of $10,000 + $5,000 dividend(without franking credit) your taxable income would be $15,000 and tax payable would be $680.

markrmau · 23 April 2006

Just note that franking credits are good for any income - not just low. Basically the tax on the dividend has already been paid at the company tax rate (30%). So as already stated, if you are on a low income - marginal rate < 30%, you get a refund, if your marginal rate is 30%, you don't pay tax on it, and if your marginal rate > 30%, most of your tax for the dividend is already paid.

(Consult a qualified accountant before relying on this information.)

bullmarket · 23 April 2006

spot on markrmau

markrmau said:
Just note that franking credits are good for any income - not just low. Basically the tax on the dividend has already been paid at the company tax rate (30%). So as already stated, if you are on a low income - marginal rate < 30%, you get a refund, if your marginal rate is 30%, you don't pay tax on it, and if your marginal rate > 30%, most of your tax for the dividend is already paid.

(Consult a qualified accountant before relying on this information.)

For those not aware of the history behind franking credits, the gov't introduced them years ago to eliminate the anomaly where company profits were being taxed twice - firstly the profits were taxed when they were still in the company hands and then again in the shareholders' hands when the after tax profits were distributed as dividends.

So to simplify the effect of the the after tax calculations for shareholders regarding franking credits:

1. The company pays tax at 30% and then distributes after tax profits to shareholders.

2. So if the shareholder's marginal tax rate is 30% then he/she will pay no tax at all on their dividend since the company has already paid the tax earlier on that dividend prior to paying it out to shareholders.

3. If the shareholder's marginal rate is less than 30% then the refund the shareholder receives on that dividend is 30% minus their marginal tax rate.

4. If the shareholder's marginal tax rate is greater than 30% then the amount of tax the shareholder pays on that dividend will be their marginal tax rate minus 30%.

cheers

bullmarket

bullmarket · 24 April 2006

In case anyone still uses the traditional 'shoe-box filing system' and finds at tax time that they have 'inadvertantly' misplaced any dividend statements then the formula to calculate the franking credits that might have been attached to the dividends is:

franking credits = (franked portion of dividend) / (1 - company tax rate) x (company tax rate)

eg.....if franked portion of dividend = $100 and is full franked at a 30% company tax rate

then franking credits = 100 / (1 - 0.3) x 0.3 = $42.86

cheers

bullmarket

Prospector · 24 April 2006

bullmarket said:
In case anyone still uses the traditional 'shoe-box filing system' and finds at tax time that they have 'inadvertantly' misplaced any dividend statements then the formula to calculate the franking credits that might have been attached to the dividends is:

franking credits = (franked portion of dividend) / (1 - company tax rate) x (company tax rate)

eg.....if franked portion of dividend = $100 and is full franked at a 30% company tax rate

then franking credits = 100 / (1 - 0.3) x 0.3 = $42.86

cheers

bullmarket

That would work work in many situations but
the only problem with that is that some companies provide unfranked dividends!

I will need to move over to companies that pay good dividends when our Super moves in to the retirement stage (a few years of yet though) so Bullmarket where have you found the best info source for this - I think this is your main strategy

bullmarket · 24 April 2006

Hi propsector

Prospector said:
That would work work in many situations but
the only problem with that is that some companies provide unfranked dividends!

I will need to move over to companies that pay good dividends when our Super moves in to the retirement stage (a few years of yet though) so Bullmarket where have you found the best info source for this - I think this is your main strategy

Nowadays I mainly use Commsec's Advanced Search tool and/or the Advanced Finder Tool on the investor.ninemsn website. Both search engines are very similar and appear to me to search the same Aspect Huntley database, but I'm not sure.

Anyway, the investor.ninemsn engine offers a few more search criteria and also allows you to download the search results into a spreadsheet (although I find downloading into Excel doesn't always work and I have to copy 'n paste )

Both Commsec and investor.ninemsn will allow you to build a search to look for companies with say a min 5% yield and are 100% franked - or whatever other search criteria you like.

When I subscribed to the old 'Shares' mag I used to also download their tables into spreadsheets from their website. But I don't subscribe to the new SmartInvestor mag so I can't download the shares tables anymore.

But the above 2 search engines easily meet my needs.

hope this helps.

bullmarket

ps....you still look great in your photo

RichKid · 24 April 2006

Thanks very much for the help everyone, should be able to digest it now.

Prospector · 24 April 2006

bullmarket said:
ps....you still look great in your photo

Well I am thanking you for that - for all the advice, that is!

bullmarket · 24 April 2006

no problem prospector

Spanning Tree · 18 September 2008

To live of dividends (assuming you live off $20,000 a year) you will need about $400,000. It depends on the performance of shares and the dividends each company pays, but $400,000 is roughly right.

Fully franked shares and dividends

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