Dividend franking of SMSFs

Written on the 27 April 2012 by Macmillans Waller Fry

Despite 25 years since its inception in the Australian tax system, there is still a cloud of confusion surrounding the dividend imputation system or the “franking dividend”.

With superannuation funds taxed at the rate of 15 per cent imputation credits can be a great tool to enhance your fund’s investments. Investing in shares directly or through a managed superannuation fund can benefit you with imputation credits, providing your fund with a financial boost that you will reap the rewards of in retirement.

The benefits of the imputation dividend system are for the majority, determined by individual tax rates and franking levels. For example, the company tax rate in Australia is 30 per cent, meaning the maximum imputation credit available attached to a dividend is 30 per cent of the grossed-up dividend. For investors that receive a fully franked dividend and their marginal tax rate is at 30 per cent or below, the net effect of the imputation system is that they refundswould have received tax-free income equal to the full distribution. For those whose marginal tax rate is below the 30 per cent rate, the benefits of the dividend imputation system are plain – imputation credits that are in excess of income tax liability are available to be refunded in cash by the ATO.
 


Author: Macmillans Waller Fry

 

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