Question

Required: Advise Jake of the tax payable due to the receipt of the dividends. Jake receives the following dividends on 1 August 2020: • $8000, fully franked from ABC Ltd. • $3000, 50% franked, from DEF Ltd. Jakes is on the top (45%) marginal tax rate. Ignoring Medicare Levy, calculate the impact of the dividends on Jake’s tax liability.

Required: Advise Jake of the tax payable due to the receipt of the dividends

Answer 1

A franked dividend is paid with a tax credit attached and is designed to eliminate the issue of double taxation of dividends for investors. Basically, it reduces a dividend-receiving investor's tax burden.

Franked dividends eliminate this double taxation by giving investors a tax credit, commonly known as a franking credit, for the amount of tax the business paid on that dividend. The shareholder submits the dividend income plus the franking credit as income but will end up being taxed only on the dividend portion. Franked dividends can be fully franked (100%) or partially franked (less than 100%).

Tax laibiltiy as follows

Fully franked dividend: 8000 are taxable but set off with franked tax credit . Here in question not provided company tax rate hence assumed total tax payable on franked dividend as franked credit receivable.

Partially franked dividend: here on 1500 marginal tax of 45 percent is payable .