FINS1612-Recap: Franking
Credit Example
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Example on franking credit concept:
Telstra profit: $1000
Company tax rate?
%30
How much tax they should pay to ATO?
0.30 X $1000 = $300
How much dividend you will receive?
$1000 - $300 = $700
Then this $700 will be part of your assessable income and you will be taxed
at your marginal tax rate (using tax table)
• To avoid double taxation you gross up your dividend by adding the franking
credit $700 + $300 = 1000 which is your before tax dividend and then after
calculation your tax liability you offset (deduct) the franking credit ($300)
to find your tax liability.
• This franking credit you deduct is the tax Telstra company has paid on
behalf of you and its like a credit in your ATO account
More detailed example on franking credit
• Lets say your income was $150,000
• + $700 fully franked dividend = $150,700
• + $300 Franked credit = $151,000
• Using table for tax lability = 29,476 + 0.37 X 31,000 = 29,476 + 11,470
= $40,946
• - $300 franking credit already in ATO account
• = $40,646 taxa payable
• (for simplicity in this example we ignored %2 Medicare levy and also Medicare levy surcharge)