Franked dividends were first introduced to nullify the uprising cases of double taxation on shareowners. They are terms that are closely associated with the business sector. The franked dividend is an amount that large companies pay their shareowners out of the annual profit generated. The uprising was instigated by shareowners who felt that it was unfair for them to be taxed for their dividends after the profits of the company are taxed before payment was made.
Australia was the first country to step forward in introducing franked dividends as an approach for shareowners to evade the imposition of taxes on similar assets over different periods. This approach was welcomed by different large companies situated in Australia. It portrayed the country as a safe hub for investments by promoting long-term share ownership.
This development led to a large influx of potential investors into businesses that are located in Australia. It provides shareowners control over their dividends, by presenting them a choice to regulate the tax imposed on their assets down to the amount charged for franked credits.
Today’s article is going to delve deeper into everything you need to know about franked dividends.
How Do They Work?
Companies that practice franked dividends give their shareowners a copy of their franked credits on their assets.
These franked credits are proof that the dividend has been taxed prior.
When a taxation body requests for payment of tax by the shareowners, they will be given a copy of the dividend payment together with the franked credits.
It is by far a welcome approach that promotes indigenous companies leading to international acceptability.
Every investor likes to invest their assets in secure establishments with a minimal payment of taxes.
The franked dividends are only available for shareowners within the country’s approved taxation percentage.
For Australia, it is within zero to thirty per cent. The shareowners are taxed in comparison with their taxation bracket.
A shareowner within the taxation bracket that is below the country’s approved taxation percentage is given a total refund of their tax.
This is because the company has already covered that. The shareowners whose taxation bracket is above the country’s approved percentage are provided with partially franked dividends.
In this type, the company settles part payment up to the regulated tax percentage while you cover the remaining excesses.
Why were they introduced?
Buying of shares is a common practice among Australians with over 1/3rd of the population being shareowners.
For a very long time, the share owners were unhappy with the double taxation dilemma and complained heavily.
The government, moved by the passion to appease their citizens, introduced the franked dividends. This approach single-handedly turned Australia into an investor’s haven.
The introduction of franked dividends in Australia has come as a wake-up call for other countries to join hands together to make life easier for their investors.
This approach will surely lead to an increase in investment in any country that adopts it and further increase the country’s Internally Generated Revenue.