Franking Rate

Company’s dividends can have tax credits attached by franking them at either the 30% or 27.5% rate by tax  law.

The dividend is franked by rate and the company’s  tax rate for the year are determined separately of each other.

Accordingly, a company might pay tax at one rate for a year.

The franking rate for a dividend paid in any particular year is based on a hypothetical scenario. You take the company’s income from last year, assume for a moment that that is the current year’s income, and based on that, determine the hypothetical tax rate that would apply for the current year as per the rules set out above. That tax rate is the franking rate for a dividend paid that year.

Because company profits may be taxed at different rates from the rate at which dividends are franked or unfranked includes:

  • Over-franking of dividends in a case of if company profits are taxed at 27.5% but franking is done at a rate of 30% avoided deficit rate
  • Under-franking of dividends in a case of if company profits are taxed at 30% but franking is done at only 27.5%.

We can assist with managing your franking outcomes.

For more information on online tax return 2020, Tax Return 2020, myGov 2020, myTax 2020 or any other tax related matter, please call our professional accountant on 1300 768 284 or you can email us at enquiry@taxrefundonspot.com.au