What is a franking credit?

Franking Credit is a tax credit provided to shareholders who are paid dividends from companies that have already paid taxes from this dividend. These credits are available to investors in companies in Australia and New Zealand, which use dividends to use the imputation system. This means that taxes are added or attributed to the company concerned and are therefore not attributed to the tax investor. An investor who receives a franking credit for some or the entire dividend must require income from his taxes, but will be returned to the loan amount. In most situations, all dividend payments are taxed for the investor, although the company that paid dividend has also paid taxes for this profit. This is known as double taxation and Australia, which wants to encourage long -term investments in local businesses, became the first removal of this process when it created a Franking system in 1987. Companies in New Zealand also allow investors to get Franking credit.

For example, imagine a franching credit, imagine a company that pays a $ 2,000 dividend (USD) to the investor and that the company has already paid 30 percent of the company's tax rate. The loan equals the amount of dividends multiplied by the company's tax rate and then divided by the difference between the tax rate and 100. In this situation, $ 2,000 would multiply 30 and then divided 70. This provides a credit of about 857 USD.

The above example is applicable if the company grants a fully fan credit. In some cases, the company may not have enough credits in its Franking account to repay its investors in this way, and as such can offer partially fanket credit. Say the above example if the company offered only partial franking credit 50 percent, this percentage would be taken from the final total$ 857, so a total of about $ 428.

When an investor receives a franking credit, he is still obliged to pay taxes of gross amounts of dividend. Once income taxes are paid according to any tax rate held by the investor, the loan shall be used for the amount due tax. If the credit is more than the amount due, the investor gets a refund. This refund can be collected or immediately reinvest, which will provide an investor who receives franked dividends opportunities for long -term opportunities.