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With the talk from Labor of removing the tax contribution for Franked Dividends to the investor, I wanted to better understand Franking Credits.
Is it possible to request dividends to not be Franked from companies?
It would be good to better understand why companies choose to pay Franking Credits?
I am asking this because I have a SMSF that is in Pension phase. From a tax point of view Franking Credits that potentially could be lost under Labor are of no help to my SMSF. As you know a SMSF in Pension phase is not subject to income tax generally speaking.
A: Imputation (or franking) credits represent the tax that the company has already paid. They are a non-cash item.
Both the cash dividend and the imputation credits are included in assessable income, and then the imputation credits acts like a tax offset. If there is a surplus (tax payable less imputation credits), then the excess is refundable in cash.
It is this very latter part (the excess being refunded in cash), that the ALP proposes to change.
As a SMSF in pension pays tax at 0%, the imputation credits in effect become fully refundable in cash.
If companies didn’t frank their dividends, then all other taxpayers (those paying tax at any rate over 0%) would be worse off.
