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What are franking credits?

Franking credits are a kind of tax credit that allows Australian companies to pass on the tax paid at a company level to shareholders. Franking credits can reduce the income tax paid on dividends or potentially be received as a tax refund.

Where a company distributes fully franked dividends (and those dividends are included in the taxable income of the taxpayer) the taxpayer can claim a credit against their taxable income for the tax that has already been paid by the company from which the dividend was paid.

Since the 2016-17 income year, the standard formula for calculating the maximum franking credits is:

Franking credit = (dividend amount / (1-company tax rate)) – dividend amount

Franking credits are paid to investors in a 0-30% tax bracket, proportionally to the investor’s tax rate. If an individual’s top tax rate is less than the company’s tax rate, the ATO will refund the difference. Therefore, an investor with a 0% tax rate will receive the full tax payment paid by the company to the ATO as a tax credit. Franking credit payouts decrease proportionally as an investor’s tax rate increases. Investors with a tax rate above 30% do not receive franking credits with dividends and may even have had to pay additional tax.

There can be eligibility requirements that must be met before franking credits can be paid, such as that you must hold the shares ‘at risk’ for at least 45 days to receive a total franking credits entitlement of $5,000 or more. There are also rules that can apply to buying, holding and selling shares with franking credits attached.

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Your First Tax Return: What You Need To Know

June 15, 2021

Tax return season is quickly approaching for individuals. You may need to begin thinking about the process sooner rather than later to ensure that you have everything ready for your accountant. If you’ve never had to complete a tax return before (and it’s your first time) or are still uncertain about what you need to do, this process can feel a bit like a Mount Everest you need to climb.

Putting it simply, if you are earning or will earn more than $20,542 this year, you will need to lodge a tax return. However, if you haven’t made that amount but your employer has taken tax out of your pay, you should lodge a return anyway to receive some (if not most) of that money back.

How much money you receive back from the tax return will be affected by how much income you have earned. Some debts (such as HECS or HELP) will begin to take money out of your return after reaching a certain income threshold level (currently set at $46,620).

A tax return is where you report all of your income earned over the past financial year. It should include ATO-reported income (which you generally won’t have to worry about as we have access to it automatically) such as salary or non-ATO reported income. This income may be income that has not been sent to the ATO and could include tips, any income you’ve earned while working under an ABN or payments from a family trust. You need to work out all of the income that you have earned and report it to remain compliant with the ATO.

In a tax return, you will also be entitled to make tax deductions on certain items if they apply to your situation. This means that you may receive a greater amount in your tax refund.

You will be entitled to tax deductions on items such as:

If you want to make sure that you understand precisely what you need to do to lodge your tax return, keep this in mind:

For assistance during the lodgement of your tax return, you can seek advice from us. We’re here to help ensure you meet your tax obligations by reporting your income correctly for this financial year.