Franked Dividend
An arrangement in Australia that eliminates the double taxation of dividends. Dividends are dispersed with tax imputations attached to them. The shareholder is able to reduce the tax paid on the dividend by an amount equal to the tax imputation credits. Basically, taxation of dividends has been partially paid by the company issuing the dividend. Investopedia Says:
This concept is best illustrated by an example. Suppose you receive a franked dividend of $100. Assume the before-tax value of this dividend is $125 (this will depend on the company's rate of taxation). In other words, the company has to generate $125 of pre-tax profit to be able to disperse the dividend.
If your marginal tax rate is 30%, you will owe $12.50 in taxes on the franked dividend (($100) -($125 * (1-.3))= $12.5). If the dividend is unfranked, you will owe $30 on the $100 dividend ($100 * (1-.7)= $30. Essentially, the company pays a portion of the tax that you would owe if the dividend was unfranked. In Australia, these taxes are paid to the Australian Tax Office (ATO). Related Terms:
Cum Dividend
Declaration Date
Declaration Date
Dividend
Dividend Imputation
Dividend Imputations
Dividend Payout Ratio
Dividend Payout Ratio
Double Taxing
Ex-Date
Ex-Date
Ex-Dividend
Ex-Dividend
Payment Date
Payment Date
Record date
Record date |