The investment world is full of intricacies and eccentricities that allow savvy investors to make the most out of their money and portfolios. Investment platforms and the opportunity for diversification has allowed the marketplace to be more accessible for people who don’t work in finance and commerce.
No doubt there are many of you reading this who have heard the term franking credits, usually in the form of a sound byte on the evening news – needless to say the concept itself is not explained to its full potential or as often as it should.
With terms like franking credits and franked dividends circling the conversation around the country, with a notable callback to a recent election where the subject was under the spotlight, we thought it would be wise to break down the concept and co-opt it with the HALO Global platform.
HALO Global is an innovative step in streamlining and creating a positive investment landscape – whether you are a new to investing, or an experienced self-directed investor. Incorporating the latest tools with some trendsetting HALO Global exclusives, we have introduced innumerable amounts of investors into the world of markets and investment portfolios.
From the latest stock screeners to comprehensive market analysis – there’s no better way to enter the marketplace than with HALO Global. We are committed to ensuring you have all the tools you need, and the mindset to understand the marketplace more efficiently so that you too can make the right choices with your investment portfolio.
Taxation and Profit Margins
Before we delve into the intricacies of taxation relating to franking credits and stock investments, it helps to understand the underlying fundamentals of it.
When you invest in shares or stocks, you effectively purchase a miniscule slice of ownership of the company. Small or large scale, the concept remains the same. A good portion of Australian companies have placements involved that will pay back a margin of the profits to their investors, this comes in the form of monetary repayment or even more stock in the company. Typically, this is based on a per share payout (e.g., $0.25 per share owned) which can equate to a nice tidy sum if you’re investing for the long haul.
What many people don’t realise is that in Australia, having these stocks in your portfolio and the payments therein can be beneficial for tax-time. Which is where franking credits make their glorious entrance.
Franking Credits Explained
Similar to how we pay our personal taxes, companies pay a tax rate on their profits. Essentially this rate is pretty standard and is typically paid by the company before paying out their shareholders their percentage.
The payments received by shareholders is considered taxable income as well, so for those keeping count – this would indicate that investors would end up paying double their tax for the payment they received. That was the norm for many years, until 1987 where the introduction of franking credits came into being.
It essentially acts as a tax rebate that can be applicable to more than just the money received from the profit margin – in fact, it can put you in a better position for future savings and investment. The franking credits are applied when you lodge your tax return, effectively alerting the ATO that the company had already paid their percentage of taxes on the profits before giving them to you, this is what is known as a fully franked dividend. The franked dividends can then be considered to be deductible to your overall tax return and could in fact garner you more profits.
There are some instances where a company has not paid their taxes correctly or on time before giving investors their slice of the profits, this is what is known as an unfranked dividend and entails that it will not have franking credits attached for your tax return.
Supercharge Your Portfolio with HALO Global
So, what does this mean for you? Well, quite a lot actually. The powerful tools available at your disposal on the Halo Global platform allows you to pick and choose the companies that have the potential for high yield returns and have an established track record with paying fully franked dividends on their profits.
Using our screeners, charts, resources, and analytics – you’ll have a better chance at turning tax time into a joyous occasion instead of a dreaded upcoming event. Our analysts are able to determine your franking credits calculation and advise accordingly.