Gurkha, now I'll try to explain it so even you can understand
The company makes a profit and is taxed on that profit After tax the company pays out a dividend to its owners, the shareholders. This dividend is treated income to the shareholders and is thus taxable and added to their income from other sources e.g. wages, interest, capital gains, rental receipts ect.
However as company owners they have already paid tax on this income they are granted a credit, franking, so as not to be taxed twice on this income. This is the purpose of Franking Credits to prevent double taxation on dividends from company's that have paid tax
If you're in a position whereby you don't pay any tax you cannot be taxed twice, you're not taxed at all. Therefore you lose the franking credit.
Were you to keep the franking credit then, upon the dividend you received, the government would effectively lose the tax paid by the company
Someone has to pay the tax.
TLS Price at posting:
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