Question

Edith McKinnon is 40 years old. Edith is an Australian resident with a marginal tax rate of 32% (including any levies) who works as a freelance photographer. This year the following transactions occur for Edith.

Dividend receipts

Edith holds shares with various Australian public companies who have a tax rate of 30%. This year Edith receives the following dividends:

• A $7,000 dividend franked to 80%.

• An unfranked dividend of $5,000. Edith receives the money into her bank account.

The assessable amount to be included in Edith’s tax return resulting from the receipt of the above dividends

Answer 1

All amounts are in $

Given Edith is an Australian tax resident

For a tax resident, Franking credit paid on franked dividend and franked portion of divided in a partially franked dividend is available as credit. The unfranked dividend will be taxed in the hands of shareholder only.

In given question

Partly franked dividend :

Franking credit = [(Dividend amount/1-company tax rate) - Dividend] x Franking %

= [(7,000/1-0.3) - 7,000] x 80%

= 3000 x 80%

= 2,400

Now, we report 7,000 plus 2,400 as income for the current year and also claim 2,400 as franking credit deduction. The unfranked portion of 1,400(7,000x20%) is shown in the return as income and taxed in the hands of Edith at marginal tax rate of 32%

Unfranked dividend :

The unfranked dividend is shown in the return as income and tax is payable by Edith at marginal tax rate of 32%

The assessable amount to be included in tax return is

Franked portion of partially franked dividend = 5,600

Franking credit on partially franked dividend = 2,400

Unfranked portion of partially franked dividend = 1,400

Unfranked dividend = 5,000

Total assessable amount = 14,400

Note : We are only asked to calculate assessable income and not the actual tax payable