Shareholders receiving franked dividends can benefit from surplus imputation credits where their taxable income is below $58,000 per annum. The surplus imputation credits are applied towards tax payable on other income.
Recent budget announcements have had the effect of limiting the practice of trading in franking credits, by requiring that shareholders retain shares for at least 45 days before they can obtain the taxation benefits of imputation credits. For most investors this change has little effect on the overall tax payable.
Shareholders who are acting in their capacity as trustees of complying superannuation funds can obtain larger taxation benefits from surplus imputation credits, due to the fund’s tax rate generally being only 15%. Where the fund receives a number of fully franked dividends, this can in some cases result in the fund paying little or no income tax.
It is very important that shareholders retain documentary evidence of dividends received and share transactions (i.e. purchase and sale details). This is particularly important where shareholders are involved with dividend re-investment plans. Where a company re-structures its share capital, merges, is taken over or goes into liquidation, information is usually sent to shareholders about the changes. Please retain this information. There are a number of computer software packages which will collate and summarise share holdings to assist with record-keeping. Taxpayers who are not well disciplined in the above record-keeping procedures, but want sharemarket exposure, may wish to consider other forms of investment, such as managed equity investments.
Capital gains tax affects most sharemarket transactions. CGT calculations are possible only when all the necessary information is available. Accountants generally make the CGT calculations on behalf of shareholders, based on the above information.
Please consult a reputable sharebroker for your sharemarket decisions. A good sharebroker can be a valuable resource in selecting the correct portfolio.
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