© Copyright Acquisition International 2024 - All Rights Reserved.

Article Image - 9 Things You Need To Know About Franking Credits Before Investing
Posted 23rd February 2023

9 Things You Need To Know About Franking Credits Before Investing

Franking credits are a way for investors to enjoy additional returns on certain investments. They are tax credits attached to dividends or other distributions paid by companies, which reduce the taxes an investor has to pay on their income.

Mouse Scroll AnimationScroll to keep reading

Let us help promote your business to a wider following.

9 Things You Need To Know About Franking Credits Before Investing

Franking credits are a way for investors to enjoy additional returns on certain investments. They are tax credits attached to dividends or other distributions paid by companies, which reduce the taxes an investor has to pay on their income. Investing in franking credits can be advantageous and potentially increase a portfolio’s return, but there are some essential things to know before investing.

This article will explain the basics of franking credits and discuss how they can be used as an investment tool. We’ll also look at how investors should research investments in this area and what risks they may encounter during their investing journey. By the end, you should understand franking credits and be better equipped to make informed decisions when investing.

1. They Form Part of a Company’s Profits

When a company makes profits, it has to pay taxes on these profits. One way to reduce the amount of tax it pays is by distributing the profits to its shareholders in the form of a dividend.

A portion of these dividends can be distributed as franking credits, which reflect the sum of taxes already paid by the corporation. Distributing the profits to shareholders reduces the tax the company has to pay and the tax the shareholders have to pay on their income.

2. Investors Can Reduce their Overall Tax Payable Through Franking Credits

Franking credits reduce the taxable income of investors, which in turn reduces their overall tax payable. For example, if an investor receives a dividend of $1000 and the company has paid 30% tax on it, they would receive $700 in franking credits.

This means that when they declare their income on their tax return, the taxable amount of the dividend will be reduced by $700. You can also learn more about franking credits explained with HALO Technologies to have a better understanding.

3. It’s Amount Depends on the Rate Of Corporate Tax That A Company Has Paid

Franking credits are based on the rate of corporate tax a company has paid. For example, if a company has paid 30% corporate tax, then investors can receive up to 30% of the dividend amount in franking credits. This means that for every $1 in dividends an investor receives, they can also receive up to 30 cents in franking credits.

In other words, if a company pays out $1000 in dividends and has paid 30% corporate tax, the investor can receive $700 in franking credits. These franking credits can then be used to reduce the taxable income of the investor on their tax return. This helps to reduce the overall amount of tax they have to pay and potentially increase their returns.

It’s important to remember that the corporate tax rate can change yearly, affecting how much in franking credits an investor can receive.

4. Investors Must Meet Certain Criteria to Qualify for Franking Credits

To qualify for franking credits, investors must meet certain criteria. This includes being on the Australian Taxation Office’s dividend imputation list, being a resident of Australia for tax purposes, and holding the shares for at least 45 days before the dividend is paid.

In addition, if an investor owns more than 10 percent of the shares of a company, they may not be eligible for franking credits. This is because companies are only allowed to distribute franking credits to shareholders who own less than 10 percent of the company’s shares, which is considered tax avoidance.

It’s also important to note that franking credits can only be claimed by individuals and not by companies, trusts, or self-managed super funds. This means that investors must declare their income on their tax returns to receive the franking credits.

5. Companies Must Disclose The Amount Of Franking Credits They Have Available

Companies must disclose the amount of franking credits they have available regularly. This information can be found in the company’s financial statements, typically released yearly to shareholders. It can also be found in the company’s dividend announcements and other corporate communications.

This information is important for investors, as it allows them to determine how much franking credits they may be eligible to receive. It also allows investors to compare the amount of franking credits available from different companies, which can help them decide which dividend stocks may be right for them.

6. Take Into Account Other Factors, Such As the Risk Involved In Investing

When investing, it’s important to consider other factors, such as the risk involved. While franking credits can reduce an investor’s overall tax payable, they can also be a source of risk. This is because companies can change their corporate tax rate or stop paying out dividends, affecting the amount of franking credits an investor can receive.

Companies may also issue new shares, which can affect the amount of shares an investor owns and, thus, their eligibility for franking credits. It’s therefore, important to consider all of these factors when deciding whether to invest in dividend stocks.

Finally, investors should also be aware of any applicable restrictions or regulations which may affect the amount of franking credits they can receive. For example, in some countries, investors may be limited to receiving a certain amount of franking credits yearly.

Final Thoughts

Franking credits can be a beneficial investment strategy; however, it is important to understand their implications and eligibility requirements before investing.

Investors should be aware of the maximum dividend imputation credit limit, any changes to tax legislation that could affect their franking credits, and the fact that distributions from managed funds are not eligible for franking credits.

By taking the time to research these factors and seeking professional advice, investors can ensure that their investments are as successful and profitable as possible.

It is important to remember that investing in franking credits can be a worthwhile strategy; however, it is always wise to understand the risks and implications before investing.

Categories: Finance, News


You Might Also Like
Read Full PostRead - Eye Icon
European Real Estate: Interest in Secondary Assets and Recovering Markets Still Rising
Finance
19/01/2015European Real Estate: Interest in Secondary Assets and Recovering Markets Still Rising

New report finds that, in spite of economic uncertainties in Europe, property remains fertile ground for investors

Read Full PostRead - Eye Icon
Everything You Need to Know Before Entering the Construction Industry
News
25/04/2023Everything You Need to Know Before Entering the Construction Industry

Are you considering a career change and contemplating entering the construction industry? If so, you're in the right place. The construction sector offers a wide range of job opportunities, from manual labour to professional roles, such as architects and engin

Read Full PostRead - Eye Icon
FarmaTrust : Building Trust and Saving Lives
Innovation
04/01/2019FarmaTrust : Building Trust and Saving Lives

FarmaTrust provides a global blockchain based pharmaceutical provenance system which eliminates counterfeit drugs, automates various pharmaceutical industry processes and provides valuable data insights to our customers. Recently, we caught up with Founder and

Read Full PostRead - Eye Icon
Things to Consider While Choosing a Business Broker
News
15/03/2022Things to Consider While Choosing a Business Broker

Selling your business is a once in a blue moon opportunity you cannot miss, and finding the appropriate business broker is critical to a smooth transaction. In most cases, a high-priced sale of one’s small business is a long-time goal for many business owner

Read Full PostRead - Eye Icon
78% of Comms Leaders Say Protecting Their Brand’s Reputation is Unmanageable
Legal
04/05/202178% of Comms Leaders Say Protecting Their Brand’s Reputation is Unmanageable

Survey finds threats such as activism, fake news and cancel culture have transformed the reputational risk landscape in the last five years.

Read Full PostRead - Eye Icon
How Hiring the Right Lawyer Can Make a Difference
News
23/10/2023How Hiring the Right Lawyer Can Make a Difference

Hiring a lawyer can be daunting, especially in complex legal matters. The decision holds profound implications for the outcome of a case, making the selection of the right lawyer paramount. This article delves into a lawyer’s far-reaching impact on a leg

Read Full PostRead - Eye Icon
We Have All the Time in the World
Innovation
29/09/2016We Have All the Time in the World

ELF Productivity Ltd, is a privately owned, UK based software and technology house.

Read Full PostRead - Eye Icon
Most Instrumental Insurance Businesswoman 2023 (South Africa): Bridget Mokwena-Halala
Leadership
26/07/2023Most Instrumental Insurance Businesswoman 2023 (South Africa): Bridget Mokwena-Halala

Since 1913, Assupol Life has been consistently delivering insurance services with a quality that has persisted throughout its whopping 110 years of operation. It adheres to a ‘serving those who serve’ ethos and has never once faltered in delivering brillia

Read Full PostRead - Eye Icon
Gender Diversity: Differentiation Through Diversity
Leadership
08/03/2023Gender Diversity: Differentiation Through Diversity

Zoe Bailey joined European intellectual property firm, Withers & Rogers, as Head of Strategic Operations almost two years ago. Since then, she has worked alongside the company's female chair to implement a modern strategic framework for the business. Whilst th



Our Trusted Brands

Acquisition International is a flagship brand of AI Global Media. AI Global Media is a B2B enterprise and are committed to creating engaging content allowing businesses to market their services to a larger global audience. We have 14 unique brands, each of which serves a specific industry or region. Each brand covers the latest news in its sector and publishes a digital magazine and newsletter which is read by a global audience.

Arrow