Facebook Twitter Instagram
    Facebook Twitter Instagram
    Delascalles.com
    Subscribe
    • Home
    • News
    • Business
    • Technology
    • Technology
    • Entertainment
    • Sports
    • Fashion
    • Health
    • Travel
    Delascalles.com
    Home»Technology»The working process of Franking Dividends Explained
    Technology

    The working process of Franking Dividends Explained

    John ThomasBy John ThomasAugust 15, 2022No Comments3 Mins Read
    Facebook Twitter Pinterest LinkedIn Tumblr Email
    Share
    Facebook Twitter LinkedIn Pinterest Email

    If you operate a business or are planning to; there are business and financial concepts you need to understand, one of which is “franking dividends”. Or maybe it’s even possible you have already received franking dividends without knowing how it works or how it was calculated.

    Most people who are already familiar with the terrains of the Australian stock markets will not find this term strange. In this article, we aim t discuss what franking dividends are, how they work, and whatnot.

    Franking Dividends—What are they?

    First introduced in 1987, the Australian Government implemented the franking dividends to avoid or stop the double taxation of some companies’ profits. Just before the implementation of this, companies and their shareholders suffered double taxation by the Government. How? A company’s income will be taxed first, and then even the shareholder’s dividends would be taxed too. Let’s break it down further.

    Let’s imagine you are a shareholder of a company whose income was subjected to a 30% tax. As you know most shareholders, are entitled to have a share of the profits a company makes. Now, if the dividend you received has already been taxed, there will be no need to pay tax the second time. This dividend is said to be a “fully franked” dividend.

    How do they work?

    Let’s imagine you own a share in company ABC, you’ll be paid franking dividends if they have already paid tax and decided to pay their shareholders dividends.

    Before then, as a shareholder, you’d receive a dividend notice with an item in it tagged “franking credits”. These franking credits connote how much tax company ABC paid on the dividend you received. As a shareholder, it is required of you for your personal tax return to be completed (dividend plus franking credit).

    You will now receive a tax credit based on the value of the franking credit. This franking credit achieves to balance against any money you’ve received. Remember, your personal income rate will always be considerably lower than the tax company ABC pays (the flat rate for tax of a big company is usually 30%).

    You will be reimbursed with the monetary difference between your tax rate and the tax paid on the dividend received. In this way, you get a tax rebate and income from that franked dividends.

    How frank dividends are calculated

    The formula for calculating franking dividends is

    Franking Credit = (Dividend Amount ÷ (1 – Company Tax Rate)) – Dividend Amount

    That is; the dividend amount is divided by the company tax rate (after it’s been subtracted from 1) and then subtracted dividend amount from the result gotten.

    However, many factors are also considered such as your personal tax rate, and the tax rate of the company you own shares with.

    Let’s imagine you received $100 (fully franked dividend) from company ABC which pays a corporate tax rate of 30%. How will franking credit be calculated? It’s quite easy.

    $100/ (1-0.30) – $100= $43.

    $43 is the franking credit. When you add it to the original $100, you have $143. This is what you will declare as taxable income despite the tax applying to the $100 only.

    This is what franking dividends is all about.

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    John Thomas
    • Website

    Related Posts

    How To Send A Letter Online, Right From Your Computer

    July 10, 2023

    What Does the Air Medical Crewmember Training Course Include?

    May 23, 2023

    Why You Want To Buy A 4K Smart TV

    March 30, 2023

    Leave A Reply Cancel Reply

    You must be logged in to post a comment.

    Recent Posts

    How Does Morpheus8 Work To Improve Skin Texture And Tightness?

    September 23, 2023

    Rock Effortless Waves with Bob Water/Deep Wave Wigs: Add Texture to Your Style

    September 21, 2023

    Mastering the Art of Oral Care: Brushing and Flossing Techniques

    September 18, 2023

    10 Common Challenges Faced by Preschool Teachers in 2023

    September 15, 2023
    Categories
    • All
    • APK
    • Apps
    • Automotive
    • Beauty Tips
    • Biography
    • Blog
    • Business
    • Celebrity
    • Covid-19
    • Cricket
    • Digital Marketing
    • Education
    • Entertainment
    • Fashion
    • Fitness
    • Food
    • Forex
    • Games
    • Health
    • Home
    • Law
    • Lifestyle
    • News
    • Pet
    • Real Estate
    • Reviews
    • Social
    • Sports
    • Technology
    • Travel
    • Update
    Delascalles.com
    • Contact Us
    • Privacy Policy
    Delascalles.com © Copyright Year 2023, All Rights Reserved

    Type above and press Enter to search. Press Esc to cancel.