Tax and Structures
Franking credits explained
Example of franking credits
Let’s look at an example. You’re the sole shareholder of your company which qualifies as a small business entity.
Over the 2018/19 year you have drawn a wage of $50,000 (if this was your only income tax is $7,797 plus Medicare levy of $1,000).
Your company made a taxable profit of $10,000 and paid $2,750 tax to the ATO. Your company then pays you the $7,250 left in cash as a franked dividend. Your taxable income for the year is shown in the table opposite.
In this example you’re on a higher marginal tax rate (32.5%) than the offset rate (27.5%).
Therefore, the outcome is that you will need to pay further tax of 5% (plus 2% Medicare levy) on the dividend after the company has already paid $2,750 in tax.
If your marginal tax rate is more than 27.5% (or 30% if dividend paid by a company with a turnover greater than $50 million), you would have more tax to pay. If your marginal tax rate is less than 27.5% (or 30% if dividend paid by a company with a turnover greater than $50 million), a refund would be available.
