A company earns $100 profit, pays 30% corporate tax, and pays the remainder as a fully franked dividend. What is the franking credit per $70 cash dividend?

The company paid $30 tax on $100 profit, leaving $70 cash dividend. The $30 tax paid becomes the franking credit attached to the $70 dividend. Grossed-up income = $70 + $30 = $100.

What is a franking credit?

A tax credit attached to Australian dividends representing corporate tax already paid. It prevents shareholders from being taxed twice on company profits.

Who benefits most from franking credits?

Australian residents in low tax brackets (0-19%) and super funds (15% tax). They can receive cash refunds for unused credits. International investors get no benefit.

What is a "fully franked" dividend?

A dividend where the company has paid the full 30% corporate tax on the underlying profit. The shareholder receives both the cash dividend and a corresponding franking credit.

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IntermediateAustralian Stocks

Franking Credits: Australia's Dividend Tax Refund

Franking credits are a unique Australian tax benefit that prevents company dividends from being taxed twice. For low-income investors, they can even generate a tax refund. This is a key reason Australians love high-dividend ASX stocks.

TL;DR

The Problem They Solve

Without franking credits, company profits would be taxed twice: once at the company level (30% corporate tax) and again when shareholders receive dividends. Australia's imputation system gives shareholders credit for the tax already paid by the company.

Key Terms:

double taxationimputation systemcorporate tax

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Franking Credits: Australia's Dividend Tax Refund

The Problem They Solve

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