As a Tax Agent Cranbourne we receive queries about the franked and unfranked dividends, this article will help you understand how dividends work.
Dividends paid by companies can be franked, unfranked or partly franked. A dividend is the taxpayer’s share of the company profit according to the number of shares they own.
Unfranked Dividend – Share of the profit before company tax has been paid.
Franked Dividend – Share of the company profit after the company tax has been paid.
Franking Credit – Company tax paid on the franked dividend. Taxpayers receive a franking offset for the amount of franking credit paid on the dividends.
Partly Franked Dividend – Part of the company tax has been paid on the dividend.
Share holders who receive dividends will receive a dividend statement from the paying company advising
• Date Dividend payable.
• The amount o the dividend that is franked.
• An amount known as the franking credit.
• The amount of the unfranked dividend.
• The amount of any TFN tax deducted.
• % rate of franking credit.
The amount of the franking credit is not received as cash by the taxpayer, but must be included in the taxpayer’s tax return because it is constructively received. In other words the franked amount is the taxpayer’s net income and the franking credit is the tax. Therefore the taxpayer has to declare both amounts.