Franking Credits
Franking credits are a tax benefit attached to dividends in Australia, showing that company tax has already been paid.
Quick reference:
Other Names: Imputation credits. Applies to: Dividends from Australian companies.
Purpose: Prevents double taxation. Benefit: Investors can offset their tax bill.
Expanded explanation:
In Australia, when a company earns profit, it pays company tex. If it then pays a dividend to shareholders, those shareholders would normally be taxed again on the income. To avoid this double taxation, the government created franking credits.
When you receive a dividend with franking credits, you also receive a credit for the tax the company has already paid. You can use this to reduce your own tax, and in some cases even get a refund if your personal tax rate is lover than the company rate.
Franking credits make Australian dividends especially attractive, and they are on of the unique features of the local market.
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