Understanding how to leverage franking credits can significantly enhance your investment returns in Australia. Our latest tool, the Franking Credit Calculator, simplifies this process by helping you determine the exact tax credits you can claim from your dividends. Whether you’re a seasoned investor or new to the stock market, this guide will walk you through using the calculator effectively, ensuring you maximize your returns and maintain compliance with tax regulations.
Franking Credit Calculator
How to Use the Franking Credit Calculator
Our Franking Credit Calculator is a straightforward tool for Australian investors to determine tax credits from dividends of corporations that have paid corporate taxes.
How do you calculate franking credits?
Franking credits, or imputation credits, are tax credits shareholders receive with dividends. The formula to calculate franking credits is:
Franking Credit = Dividend Amount × (Tax Rate / (1 – Tax Rate)) × Franking Percentage
Step-by-Step Guide
- Enter Dividend Amount: Insert the amount of the dividend you received.
- Select Company Tax Rate: Choose the applicable tax rate provided in your dividend statement.
- Input Franking Percentage: Found in your dividend statement, indicating the taxed portion at the corporate level.
- View Results: Automatically displays your franking credit and the gross-up multiple.
Outputs Explained
- Franking Credit: The tax credit you can claim.
- Gross-Up Multiple: Represents the total taxable dividend amount.
Finding Your Dividend Franking Credits
Your dividend statements, available through your brokerage or investment account, will provide all the necessary details for this calculation.
Example: Calculation of Franking Credits
Let’s consider an example involving ABC Pty Ltd, an Australian resident company, and Sarah, a resident individual shareholder.
On March 10, 2024, ABC Pty Ltd paid Sarah a fully franked dividend of $800 and an unfranked dividend of $200. Sarah received the dividend statement from ABC Pty Ltd.
We will follow the ABC Pty Ltd example through the next few sections of this guide to understand how Sarah can calculate her franking credits and assessable dividend income.
Assessable Dividend Income
Sarah’s assessable income for the financial year 2023–24 in respect of the dividends from ABC Pty Ltd is as follows:
| Dividend Type | Value ($) |
|---|---|
| Unfranked dividend | $200 |
| Franked dividend | $800 |
| Franking credit | $342 |
| Total assessable income | $1,000 |
If these were the only dividends Sarah received or credited with for the income year, she could transfer these amounts directly to the relevant sections on her tax return.
Discover everything you need to know about fully franked dividends in our comprehensive guide.
For more information, go to ATO’s website
What is a franking credit for dummies?
A franking credit is essentially a tax credit for Australian shareholders. It represents the tax that a company has already paid on its profits, which is credited to shareholders to reduce their income tax on dividends.
What does 30% franking mean?
30% franking indicates that the company has paid 30% of the dividend tax. The shareholder can claim a credit for this amount against their income tax.
Is franking credits worth it?
Franking credits can be very beneficial as they prevent the double taxation of dividends, effectively reducing the amount of tax paid by shareholders. The worth depends on your tax situation—generally, they can offer significant tax advantages, especially for those in higher tax brackets.
What is a franking credit in simple terms?
A franking credit, also known as an imputation credit, is a tax credit that represents tax already paid by a company on its profits. When a company distributes dividends to its shareholders, it may attach these franking credits to the dividends, indicating that a portion of the dividend has already been taxed at the corporate level.
Are franking credits a tax refund?
Yes, franking credits can result in a tax refund for shareholders. If the amount of franking credits attached to the dividends exceeds the shareholder’s tax liability, the excess credits are refunded to the shareholder by the Australian Taxation Office (ATO).
How do franking credits work in ATO?
Franking credits work by allowing shareholders to offset the tax already paid by the company on its profits against their own tax liabilities. Shareholders include the franking credits when calculating their taxable income and may receive a refund if the credits exceed their tax liability.
Are franking credits good or bad?
The perception of franking credits as good or bad depends on individual circumstances. For Australian investors, franking credits can enhance investment returns by reducing the tax burden on dividends. However, their value may vary depending on tax rates and personal tax situations.
How much tax do I pay on fully franked dividends?
The amount of tax paid on fully franked dividends depends on the shareholder’s marginal tax rate. Generally, shareholders are required to include both the dividend and the attached franking credits in their taxable income and pay tax at their applicable marginal tax rate.
What do I do with franking credits?
Shareholders can use franking credits to offset their tax liabilities, potentially resulting in a reduced tax bill or a tax refund. If the franking credits exceed the tax liability, the excess credits are refunded by the ATO.
How do I claim franking credits not for profit?
Shareholders who are not liable to pay tax or whose tax liability is lower than the franking credits attached to their dividends can claim a refund from the ATO. This process involves completing the relevant sections of their tax return or lodging a franking credit refund form.
What is the 45-day rule for dividends?
The 45-day rule is a requirement that shareholders must satisfy to be eligible for franking credits on dividends. To qualify, shareholders must hold the shares “at risk” for a continuous period of at least 45 days, excluding the days on which they acquire or dispose of the shares.
What is a fully franked dividend in Australia?
A fully franked dividend in Australia is a dividend that carries the maximum available franking credits. It means that the company has paid tax on its profits at the corporate tax rate, and the entire dividend amount is accompanied by franking credits representing this tax.
What is the difference between franked and unfranked dividends?
Franked dividends are accompanied by franking credits representing tax already paid by the company, while unfranked dividends do not have attached franking credits. Shareholders need to pay tax on both types of dividends, but franking credits can reduce the tax liability on franked dividends.
Disclaimer
This calculator is for informational purposes only and should not be considered financial advice. Calculations are estimates based on the inputs provided. Always consult with a financial advisor or tax professional to ensure accuracy and compliance with local laws and regulations.
- Estimation Only, Not a Prediction: Please note that the results generated by the Franking Credit Calculator are estimations only, not predictions. They are based on the inputs you provide and standard calculation methods intended for educational and illustrative purposes. The actual franking credits you may receive could be higher or lower. The calculator cannot account for unpredictable factors that may affect investment outcomes, such as market fluctuations or economic conditions.
- Exclusion of Fees and Charges: This tool does not consider brokerage fees, transaction charges, or any other fees that might be incurred when dealing with franking credits. These costs can significantly affect the actual performance and returns of your investments.
- Not a Substitute for Professional Advice: The Franking Credit Calculator should not be used as the sole source of information for making financial decisions. It does not account for all aspects of your financial situation and does not provide personalized advice. Before making any investment decision related to franking credits, consider consulting with a licensed financial adviser who can provide tailored advice based on your individual circumstances.
- Use at Your Own Risk: By using this calculator, you acknowledge that the results are estimates only and that actual franking credit amounts may vary. Any reliance you place on such information is strictly at your own risk.
- Not a Licensed Financial Advisor: The information and insights provided by the Franking Credit Calculator are intended solely for educational and informational purposes. It’s imperative to understand that the calculator is not a substitute for professional financial advice. The results should be interpreted with caution, and users are encouraged to seek guidance from qualified financial advisors or tax consultants.
- Affiliate Disclosure: Some links on this blog may be affiliate links. This means if you click on the link and make a purchase, I may receive a commission at no additional cost to you. I only recommend products or services that I believe in, and that may be helpful to my readers. However, the decision to purchase any product or service is entirely up to you, and your financial decisions should not be influenced solely by affiliate relationships.
Before making any financial decisions related to franking credits or investments, it’s crucial to consult with a professional financial advisor who can provide personalized advice tailored to your specific financial goals and circumstances. Remember, the responsibility for financial decisions lies with the individual, and seeking qualified advice is essential for making informed decisions and achieving financial objectives.
1 thought on “A Guide to Using the Franking Credit Calculator for Australian Dividends”