The following example shows how the fully franked dividend of $700 and unfranked dividend of $200 from Coals Tyer Ltd affect John's tax liability. It is assumed that John has other income of $40,000. Medicare levy is not included in the calculation.
John's assessable income includes the franking credit in addition to the franked and unfranked dividends, and John's tax is based on this higher figure. However, he is able to use the tax already paid at the company level - the franking tax offset - to reduce the amount of tax that he has to pay on his assessment.
Example: Tax payable on dividend statement
Unfranked dividend received |
$200 |
Franked dividend received |
$700 |
Franking credit - non-cash |
$300 |
Other assessable income |
$40,000 |
Total taxable income |
$41,200 |
Tax on $41,200 - assessed at 2004-05 rates |
$8,532 |
less franking tax offset |
$300 |
Tax payable |
$8,232 |
End of example