Hi KWof Perth.Here's my take on franked dividend tax credits....

Hi KWof Perth.

Here's my take on franked dividend tax credits.

The Company has paid tax on the net profit at the corporate tax rate of 30%. It distributes some of the remainder as dividends to shareholders which are then added to a shareholders net income and is assessed as such by the ATO at the individual’s marginal rate of tax.

Your objection is that if an individual’s marginal rate tax is less than the 30% corporate tax rate, the individual receives a tax refund on the difference between the corporate rate and his/her own.

The company has met its obligation to pay the corporate tax, so it is now out of the equation.

The balance of tax owed is now between the individual and the ATO. The individual is then responsible to pay the tax on their own income. Higher earners pay more, low earners pay less.

A shareholder is part owner of the company. He or she derives part of their income from that company. If we are to ignore the individual, whose income attracts lower than a 30% rate of tax, then we would also have to ignore the higher income earners of >$37,000pa who would be sending a cheque off to the ATO.

To ignore the individual’s income changes a fundamental principal of our ‘progressive’ tax system. Ie. The more you earn, the higher the percentage tax you pay.

This would also have adverse implications for retirement superannuation pension accounts being taxed more.