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Understanding Franked dividends: What are These Products?

It is possible that one is not familiar with all the terms in their industry. As a matter of fact, one of the most asked questions is, what are franked dividends? This content uses simple words to provide every piece of information you may need about these products. Follow closely.

A simple answer to the question, what are franked dividends?

A franked dividend refers to a payment made but attached with a tax credit. Its purpose is direct – it is to remove the possibility of paying double taxation by an investor. The implication is that it helps eliminate the tax burden on an investor from their received payout. So, what are these products? A plan to eliminate the double payment of tax.

What is a dividend?

In simple terms, a dividend refers to the money a company pays its shareholders after they have made profits. There are different seasons to this payment. Some companies pay monthly, some prefer quarterly, while others do semi-annually and annually. Also, these can be paid during special events (standalone).

It is important to say that these payments are deducted from profits. As a result, one could say that the payment has been subjected to tax at its topmost level. Hence, a shareholder that has just been paid their payouts is not obliged to pay tax on these incomes anymore. Making any payment of such implies double taxation.

Back to questions, what are franked dividends? They help to remove the double taxation. One may further ask, how is this possible? It is possible that these products give investors a franking credit to show that the corporate organization had previously paid an amount as a tax on the product.

The shareholder can now show their franking credit alongside their income. As a result, they are only taxed from the portion.

What are the types of franked dividends?

Apparently, this content does not only answer the question, what are franked dividends? It also, answers another important question which is, what are the types of these products?

There are two types of this product. They include;

  • Fully franked dividends – this product is 100%. That is, the shareholder does not have to make any payment at all.
  • Partially franked dividends – on the other hand, this product is not 100%. The shareholder may still be expected to make some tax payments, but not illegally. Remember, franking products prevent the possibility of being taxed twice.

Other facts that may answer the popular question, what are these products?

An organization can claim the deduction of tax. The major reason they do most times is because of losses from the previous years. This means that they will not pay all the taxes for that particular year.

At this stage, the dividend is partially franked, and the investor is expected to pay the rest of the tax.

Conclusion

Having read this content, you should be able to answer confidently if confronted with, what are these products?

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