I will try to simplify dividends and the tax implications for...

I will try to simplify dividends and the tax implications for you.

example 1, I get a 10c dividend. It gets added to my personal income. I would pay income tax at whatever my personal income tax is, and because I work a job and I’m on $120k, my top tax bracket may be 37 percent. Now if the company had paid an unfranked dividend, I would have to pay the 37 percent in tax. BUT, if the company had paid a fully franked dividend, they would have already paid 30 percent in company tax, which I can use and only pay the extra 7 percent.

example 2, I’m a pensioner and don’t work so I haven’t used my tax free threshold. I get a fully franked dividend of 10c but because I don’t have to pay tax and the company has already paid tax on it, I can claim the 30 percent tax back at tax time.

Now because the company has accumulated losses from previous years, they can make a profit and avoid paying taxes as they can offset the previous losses against the profits. When they run out of losses, they will have to pay company tax which could be used as franking credits for dividends.

I am not an accountant but a tradie, this is my general understanding. I could be wrong but this is my simplified version. Seek professional advice, blah blah blah…