As seen in Woopi News November 2024
Recently we met with a couple of retirees to discuss a capital gains tax matter. The couple hadn’t needed to lodge tax returns for 15 years, as their investment income was under the tax-free threshold for senior Australians. After asking just a few questions, I discovered they owned shares, most of which were in the wife’s name. The appointment very quickly shifted to a discussion about how although they are not required to lodge a tax return, they should lodge one due to the potential gold mine of unclaimed franking credits. The company’s they hold shares with had paid franked dividends every year for the past 15 years and even after our accounting fees they were refunded approx. $10,000.
So, what are franking credits? When a company pays tax on its profits to the ATO, it accrues franking credits. When the company distributes these profits to its shareholders by way of a franked dividend, the dividend has franking credits attached. The shareholder then declares the dividend received, plus the franking credit in their tax return as income, and the franking credit counts as tax already paid on that income. The reason for this is that the Company already paid tax on the profits, so when the individual shareholder declares the dividend as income, the income would be taxed a second time, but to prevent that, the franking credit is applied to offset the tax originally paid by the company.
Moral of the story; if anyone reading this article has an elderly friend or relative, it wouldn’t hurt to bring this topic up in conversation. Someone you know in our local community, most likely a retiree, may have a small fortune of unclaimed franking credits they are entitled to claim back.
Stasha Dunn - StaySharp Accounting
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