Politicians’ Fingers in the Dividend Pie

Some Retirees own shares listed on the Australian Stock Exchange like Telstra and the Banks.

These Companies often pay dividends to shareholders to which is attached (or imputed) tax credits. If their taxable income is below the tax-free amount (currently $18,200) then the tax credits are refunded by the tax office after lodging their tax return. This system is known as franking.

The franking system was introduced in Australia in 1987 by the Hawke / Keating Labor Government. It makes the taxation system fairer because before its introduction, Companies who paid tax would then distribute the after-tax amount to shareholders by way of dividend(s). The shareholders would then pay tax on the dividend received. So effectively, the dividend was being taxed twice. Once at the Company level and once at the individual level.

Since 1987, when a shareholder whose taxable income is under the tax-free threshold is paid a franked dividend from say Telstra, the tax credit attached to that dividend will be refunded to the shareholder’s bank account by the ATO. Complicated stuff, but it works.

Labor has recently released a proposed policy to stop or limit franking so it’s ironic that the political party that originally introduced the system, beneficial to all tax payers now wants to cease it. Poll’s appear to have the current Opposition ahead as the preferred government at the next election. This will mean dividends may again be double -taxed. A different tail wags the dog.

Northern Business Consultants – (NBC Mango Hill Pty Ltd) are Big Local sponsors and are Accountants, Tax and Business Advisers located on the upper level of the Mango Hill Market Place and Aspley. Any advice given in this article is general in nature and cannot be acted upon without specific advice from NBC Mango Hill Pty Ltd. Please visit us at: nbc.com.au