Do you get the feeling that you’re just treading water financially? Don’t think you’re alone. A recent study conducted by ME Bank into household financial comfort suggested that over 25% of Australians have less than $1,000 in savings to draw upon in the event of an emergency.

Here are some tips to help you get off the money-go-round and back in control of your money.

Develop a budget

It is important to have awareness of where you are spending your dollars. By creating a budget, as boring as it sounds, it can change things dramatically because you become more aware of where you are spending your money.

There are many good budget tools out there. I suggest the ASIC Money Smart Website Budget Tool.

Get on the same page

It can be difficult maintaining a budget if you have a partner who isn’t on the same ‘money-wise’ page as you. I’ve seen figures indicating that around 60% of couples argue over money, therefore talking to one-another about your financial goals and aspirations in a constructive and respectful manner can really help. We spend so much of our time finding “the one” who will share our values, and financial values are just as important when it comes to maintaining a comfortable and stress-free lifestyle.

Educate to elevate

Education can elevate you to different pay levels, provide career opportunities and/or even allow you to start up your own business. It has long been a catalyst to achieve a better life and millions of people have invested in themselves to create opportunities.

Look for a new job

With unemployment in Australia low at present, there are always plenty of employers looking for good staff. If your current boss is underselling you, there’s a strong chance in today’s employment landscape that someone else will pay a premium for a good employee just like you! Don’t get stuck in a rut and accept the same job conditions; do something about it and change your life at the same time.

Invest in yourself

If you’re still struggling to see the light at the end of the tunnel, then employ the services of a financial planner to help you navigate the big issues. An investment in yourself is the best investment you can ever make because it can pay a lifetime of dividends and give you the best returns. Never underestimate your value and potential.

The money-go-round is not an enjoyable place to be. By taking action and pursuing opportunities you can write your own financial and life story. Don’t just accept the status quo or get caught in a state of inertia; there’s always something you can do to improve your situation and there are plenty of people to help you if you’re struggling to do it alone.

Note that the above recommendations are provided as general advice only. It has not taken into account your personal financial circumstances. If you would like advice tailored to your specific financial position, please contact us. One of our friendly advisers would be delighted to help you.

Many Australian retirees find they want a smaller home, or a home more suited to their empty-nest requirements. For some retirees, selling the family home can be a great way to release built-up equity to pay for retirement living expenses or in-home support that will allow them to stay at home longer.

Older Australians are the people targeted by the Government’s new policy to allow homeowners aged 65 years or over to downsize their family home and invest the surplus into their super. The downsizing and super contributions proposal was announced as part of the 2017/2018 Federal Budget (May 2017 Budget). The proposal became law on 13 December 2017.

From 1 July 2018, Australians aged 65 years or older will be able to make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years. The legislated rules indicate that the property sold must be the person’s primary residence.

Couples will be able to contribute up to $300,000 each, giving a total contribution per couple of up to $600,000.

Any super contributions made using the new downsizing rules are in addition to any voluntary contributions made under the existing non-concessional (after-tax) contributions cap.
Although downsizing and contributing to super is an interesting idea, there are definitely some benefits and dangers – together with a few unknowns – to consider before taking the plunge.

Set out below are 10 important issues to consider before downsizing your home and contributing to your super account:

1. Opportunity to boost super balance

Retirees who have not had the opportunity to save sufficient funds for a comfortable retirement will be able to use the new downsizing cap to top up an inadequate super balance.

2. No ‘work test’ or age limit

The existing ‘work test’ for voluntary contributions made by those Australians aged 65-74 does not apply to downsizing contributions. Currently, people in this age group need to prove they worked in gainful employment for 40 hours within a 30-day period during the year to make a super contribution.

3. Retirement phase transfer balance cap remains in place

Australians making a downsizing contribution into their super account will still face a $1.6 million transfer balance cap on the amount of super savings they can move into tax-exempt retirement phase income streams. If a person has reached their $1.6 million transfer balance cap, then any downsizing contribution they make will need to remain in accumulation phase (and be subject to 15% tax on any earnings derived from the investments).

4. Contributions not subject to the $1.6 million Total Superannuation Balance restriction

Since 1 July 2017, an individual cannot make non-concessional (after-tax) contributions to a super account if they have a Total Superannuation Balance of $1.6 million or more. Individuals who have maxed out their opportunity to make non-concessional contributions to a super account will still be able to make a downsizing contribution as these contributions are exempt from the new $1.6 million Total Superannuation Balance limit.

5. No requirement to buy a new home

An individual making a downsizing contribution (from the sale of their principal place of residence) is not required to buy a new home after they sell their home.

6. You must submit a downsizing contribution form

Downsizing contributions will be invested within the super environment, which means such assets will be able to take advantage of the lower tax rate levied on investment returns within the super system. Earnings received on a super balance are only taxed at 15% (or are tax-exempt if rolled into a retirement income stream) rather than taxed at the person’s normal marginal tax rate.
Given the tax advantages, it’s worth noting that the ATO will be responsible for administering the scheme. Before accepting contributions under the downsizing scheme, super funds require verification on behalf of the ATO that downsizing contributions are from the sale of a family home owned for more than 10 years. An individual planning to make a downsizing contribution must provide his or her super fund with the special form before or at the time of making the downsizing contribution.

7. Contributions count toward Age Pension tests

The government has confirmed downsizing contributions will be counted for the assets and income tests used to determine eligibility for the Age Pension and DVA benefits. Downsizers will be moving money out of an exempt asset (their family home) into the non-exempt and assessable environment of their super fund.

8. Transfer and property costs limit surplus capital

The costs involved in selling a family home can be substantial due to high stamp duty and land taxes, therefore, people considering downsizing should carefully calculate this impact.
In addition, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city). Hence potential downsizers should check they will have sufficient funds left over for a worthwhile super contribution.

9. Timeframe (90 days) for contributing sale proceeds into super

The new downsizing law specifies that an individual hoping to take advantage of this measure must make the downsizing contribution within 90 days of receiving the sale proceeds (typically settlement day) from their family home before they are prohibited from making a downsizing contribution.

10. 90-day timeframe may give an opportunity to invest sale proceeds before contributing

The downsizing policy starts from 1 July 2018. The new laws don’t appear to preclude investing the sale proceeds or mixing the proceeds with other money in the period between settlement and making a super contribution.

Learn more about our personal financial planning, mortgage broking or self-managed super fund services. Please note that the above is prepared as general advice, it has not taken into consideration your personal circumstances or financial goals. For more tailored advice, please contact us today, one of our friendly advisers would love to speak with you.

Funding your children’s education expenses can be costly. The money you spend on your kids’ education could be one of your family’s biggest expenses.

Research conducted by The Australian Scholarships Group (ASG) on education costs, provides some context. The research is based on a child starting pre-school today and suggests that opting for the private school route from Prep – Year 12, will set you back a cool $367,569 per child. Even if you decide on a government school for primary years and private for secondary, you will still need to come up with $244,822. Ouch!

For most families, at the time when kids are starting out at school, household budgets are already stretched with mortgage repayments, bills and living expenses proving challenging enough. What this means is that some careful forward planning is required to make sure you have enough money to give you, and your children, the full array of options for education.

Here are 5 tips to consider:

1. Plan for your children’s education.

It is important to have the discussion with your partner, do your research and estimate how much it is going to cost you. Open up dialogue with your better half about what you want your children’s education to look like is the number one priority. Is it through Private or Government schooling? Do one of you want to send them to the school you attended as a child? Does your child have any special needs? The sooner you have these conversations the better.

All schools have websites. Check out those that you’re interested in. Most should include information about fees and advise you whether there is a waiting list.

There is a heap of great resources out there to help you on your way. The ASIC Money Smart website and the Australian Scholarship Group’s online calculator are a couple to try out.

2. Start saving early!

Like any other long-term savings goal, the sooner you start, the better! The best time to start saving is when your child is born or possibly even earlier. Make a budget and decide how much you can put aside each week. Look to increase the amount each year to ensure you’re keeping pace with inflation.

To get you started there are a few ways you can go about it. It could be as simple as setting up a direct debit from your everyday account into your savings. You could also make a lump-sum contribution, such as your annual tax return or end of year bonus.

The sooner you start, the longer you reap the rewards of compounding interest.

3. Structuring things right and invest in the name of the parent earning the lower income.

If one member of a couple isn’t working and staying at home to look after young children, or working part-time, chances are their marginal tax rate is low. Therefore, holding investments or savings accounts in their name may be of benefit. Keep in mind any future plans of that person returning to full-time work.

4. Once you have a little bit of savings behind you, look to get that money working harder for you.

An investment in blue chip Aussie shares and managed funds can be a great way to accelerate your savings. Bear in mind that these investments are riskier than leaving your money in the bank and that you won’t get rich overnight. A 5 year plus time frame is appropriate.

An alternative investment vehicle is the use of Investment Bonds or Tax Paid Bonds as they are sometimes referred too. They provide a variety of investment options such as shares, property and fixed interest. The reason why investment bonds are referred to as a tax paid investment is because any earnings get taxed at the company tax rate of 30% within the investment.  As long as money remains invested for 10 years, the investment provider pays the tax on the investment earnings so you don’t have to report the earnings in your tax return.  If you withdraw before 10 years, then you would need to include earnings in your personal income tax return.

Note – minimum investment amounts and costs such as brokerage, or entry and ongoing management fees will apply with the above-mentioned investments.

5. An alternative – saving in an offset account against your home loan.

Another simple, but potentially a very effective way of saving for education costs is through your home loan. An offset account allows you to make extra repayments into a bank account attached to your home loan. It operates much like a normal bank account with some special features. Namely, the amount you have in the offset account effectively reduces the loan balance the bank uses to work out your interest payable on your home loan. For example, if you have a home loan of $300,000 with $100,000 in an offset account, the bank calculates interest based on only $200,000.

The money you have in an offset account is generating an after-tax return equal to the interest rate of your home loan. For instance, if your bank is charging you 5.00% interest on your loan, the funds in your offset account save you this rate of interest being charged. If you compare this to saving money in an ordinary bank account, the bank may (if you’re lucky) pay you 3.00% interest on your savings, from which you still need to pay tax.

The key to using this option is discipline. Money in an offset account can often provide a temptation to use the money for other purposes; renovations, car upgrades, holidays etc. If you plan to use these funds in the offset account to save for education costs, then you must resist temptation.

My advice is to start early, work out how much you will require for education costs, how much you will need to save to get there and then select the appropriate savings vehicle. Seek the help of a good financial planner to set you on the right path.

Are you interested in planning for your children’s education? Are you currently juggling education costs and need a plan yesterday? Contact our office for your free initial consultation. Call our office today, toll free on 1800 679 000 for our Rockhampton office and 1800 804 431 for our Melbourne office.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s Individual objectives, financial situation or needs.  Before acting on anything in this article you should consider if it is appropriate for you, having regard to your objectives, financial situation and needs.

The ABC program, Four Corners, recently ran an exposé regarding a major Retirement Village operator in Australia.  As background for those who have not seen the program, there was concern about the level of fees being charged to the residents of the Retirement Village in particular, when someone leaves the Village and sells their unit – often described as deferred management fees.

This is a good reminder of a very important concept to understand as there is a clear distinction between a Retirement Village and Residential Aged Care.

Retirement Village

• They are open to those over 55 years old, generally via a 99-year lease arrangement that can be on-sold under certain conditions.
• They are generally more of a “lifestyle” decision than a health care-based decision.
• You will often pay some type of weekly or monthly management fee for the maintenance of the facility as well as a provision of services they offer.
• Your contract with the Village will outline how, when and who you can sell your unit to when you exit the Village.  It’s not often you can use the local real estate agent as this is not a ‘normal’ property transaction.
• Your contract will also outline what fees the Retirement Village will charge you upon exit. We have seen contracts that take 50% of any capital gain on the property or perhaps 30% of the total sale price.
• The resident exiting the Retirement Village will often have to meet the refurbishment costs of the unit for the incoming resident.

Retirement Villages are not something you want to be in and out of quickly.  If it is reasonably foreseeable that you may need additional care in the near future, perhaps staying in your own home and accessing some home care may be a better option.

Residential Aged Care

• Is open to anyone of any age (typically the elderly though).  Importantly, you can only enter a facility if you have an assessment (known as an ACAT assessment) done that confirms you qualify to enter Residential Aged Care.
• You will either ‘buy’ or ‘rent’ your room and pay a daily fee for your care.  A large portion of your daily care fee is subsidised by the Government and how much you pay is determined by a formula, which takes into account your means to pay the fees.
• Depending on how you pay for your room, your deceased estate can receive 100% of what you paid for the room in the first place (this is very different to a Retirement Village).

There are now a number of ‘dual’ facilities on the market where they offer you a Retirement Village unit initially and as your level of care increases, you move into Residential Aged Care, all within the one facility.  On face value, this seems a good idea however, we find this can lead to a false sense of security as you will still be technically required to exit your Retirement Village agreement (incurring the deferred fees outlined above) before entering a Residential Aged Care agreement.

As the Four Corners program highlighted, this is an incredibly complicated area to navigate.  Retirement Villages are not all bad; they can be fantastic for the right person. It’s incredibly important you and those around you understand what you are purchasing because there’s more to it than just downsizing into a small unit.

If you or someone near to you is considering a move, we cannot stress enough the importance of getting professional legal and financial advice from people who know how the industry works, to ensure you and your family understand if this is the right decision.

Contact The Investment Collective today to set up an obligation free meeting to discuss the suitability of a retirement village or residential aged care with an adviser and which would be more suitable for you according to your personal circumstances and personal goals.

Women face unique challenges when it comes to retirement savings. Time out of the workforce to care for children is likely to affect your income and your ability to accumulate superannuation.

Here are some simple strategies that make it possible for women to overcome these hurdles.

Government Co-Contribution

• If you earn less than $36,021 during the 2016-17 financial year and contribute $1,000 of your own money to super, the government will put $500 in your fund shortly after you submit your tax return – a sweet 50% guaranteed return!
• In addition, if you earn less than $37,000 you will have your super contributions tax refunded to your fund to a maximum value of $500.

Spousal Contribution

• This is a fantastic and under-used strategy particularly for women working part-time which will provide your spouse with a handy tax break. It works like this… If you are earning less than $10,800 a year, get your partner to make a $3,000 contribution into your super and receive a $540 tax rebate.
  • Note: the spouse income threshold will rise to $37,000 from 1 July 2017 making this strategy more accessible and attractive.

Spouse Contribution Splitting

• Another underutilised strategy but a great one for rebalancing super accounts and topping up a low super balance. It is a simple process, allowing up to 85% of your spouse’s contributions made to their super fund being transferred into your account.

If you are not sure how to apply these strategies to your situation, it may be worth consulting an adviser to ensure your super keeps rolling in during periods of absence from the workforce.

Please note, this article is for general advice purposes only. It has not taken into account your personal circumstances or financial goals. If you wish to access more personalised advice tailored to your circumstances and financial objectives, please contact our friendly staff today.

When do you need some super tax tips? When we are hurtling towards the end of another financial year. The perfect time to get your house in order! After recent legislative changes, super remains a low-tax savings environment designed to fund your retirement.

We have put together a useful checklist that will help you maximise your entitlements.

1. Do a “Lost Super” search

With more than $17 billion in lost super, there’s a chance a few of these dollars might be yours. Google ‘superseeker’ and it will take you to the ATOs Super search tool. Simply enter your name, date of birth and tax file number in the search filters and you’re set.

2. Consolidate your super funds

Make sure you have undertaken step 1 and have a flick through your past statements. Use this opportunity to consolidate your funds into one account to make life simple. Ensure you’re not missing out on any insurance or other benefits before you close any accounts. Rolling over existing accounts into one account is a simple process with many superannuation funds providing this service.

3. Salary sacrifice

You’ve probably heard the term before but what does it actually mean? Salary sacrificing is when you ask your employer to redirect a portion of your pay as a contribution to super. By ‘sacrificing’ some of your before-tax salary into your super, you are taxed at the concessional tax rate of 15%. These before-tax contributions reduce your taxable income so you pay less tax at a marginal tax rate.

4. Non-concessional contribution

If you’ve recently sold an asset, received an inheritance or received a bonus from work, then a non-concessional or after-tax contribution might be worth considering. It is referred to as a ‘non-concessional’ contribution because you don’t receive a tax deduction. Non-concessional contributions are the simplest way to add to your super as you simply deposit your personal money into your super fund.

5. Co-contribution

If you earned less than $36,021 during the 2016-17 financial year and make a non-concessional contribution of $1,000 towards your super, the government will also contribute $500. That’s a guaranteed 50% return on your money!

6. Spousal contribution

If your spouse earns less than $10,800 and you make a $3,000 non-concessional contribution to their super, you may be eligible for a tax rebate of up to $540.

7. Super splitting

If you or your partner take time off work or reduce working hours to look after the kids, keep the super contributions rolling by splitting. It allows the working spouse to have up to 85% of their super contributions placed into the account of the non-working spouse. It helps keep a couple’s accounts evenly balanced and is simple to implement.

8. Transition to retirement

If you’re aged between 57 and 64, a Transition to Retirement (TTR) strategy might be right for you. Despite recent budget announcements, TTR remains a solid strategy that lets you draw tax-effective funds from your super while you’re still working. You can then use your normal income to make concessional contributions to super. The simplest way to think about it is that you’re recycling your retirement benefits to reduce tax and boost super.

9. Set up a self-managed super fund

For those of you with more than $250,000 in accumulated super, a self-managed super fund might be the way to go. The Australian Tax Office has helpful videos click here and search for “SMSF videos”. It’s very important to get the right advice before proceeding.

10. Seek advice from a professional

Financial advice can help you identify and plan to achieve your financial goals so you can enjoy the lifestyle you want. A financial adviser will help you assess your current circumstances, identify your goals and priorities, and recommend financial strategies and products that will help you reach your goals.

So there you have it: the essential 10-point super checklist to tick-off before the end of the financial year. If executed consistently every year, it can make a big difference over the long-term. It is never too late to start!

Please note, this article is for general advice purposes only. It has not taken into account your personal circumstances or financial goals. If you wish to get more personalised advice tailored to your circumstances and financial objectives, please contact our friendly staff today.

Small businesses are the engine room of our economy. They are the home of Australian enterprise and opportunity and are where many big ideas begin. The Federal Government’s 2016 budget announced that it will reduce the tax burden and increase access to concessions for small businesses.

Small business entity turnover threshold

From 1 July 2016, the small business entity turnover threshold increased from $2 million to $10 million. The current $2 million turnover threshold will be retained for access to the small business capital gains tax (CGT) concessions.

Lower Taxes

The Government has further backed small businesses by reducing their tax rate to 27.5%, starting with businesses with a turnover of less than $10 million from 2016-17 income year. The Government will progressively decrease the tax rate for all companies to a flat 25% by 2026-27.

As many small businesses are not companies, the Government will also extend the unincorporated tax discount to unincorporated businesses with annual turnover of less than $5 million and increased the discount to 8% from 1 July last year, up to a maximum value of $1,000. After this initial increase, the discount will be increased in phases to a final rate of 16% in 2026-27.

Over 3 million businesses have accessed either the lower tax rate or higher discounts during 2016-17.

Expanding access to small business tax concessions

By increasing the small business entity turnover threshold to $10 million, the Government will provide over 90,000 businesses with access to a range of small business tax concessions. From July 2016, all small businesses with annual turnover of less than $10 million will have access to:

Instant asset write-off – simplified depreciation rules.

• Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000 until 30 June 2017.

Deductions for professional expenses for start-ups

• Small businesses are entitled to certain deductions when starting up (i.e. professional legal and accounting advice and government fees and charges).

Small business restructure rollover

• From July 2016, small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another. This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.

Lower taxes and expanded access to tax concessions will mean increased opportunity to grow a small business, employ more Australians and increase wages.

The announced changes present good opportunities for businesses and individuals to save on tax. If you think you may be eligible and want to take advantage of some of the new measures introduced, please contact our office to speak to one of our business consultants.

This article is for general advice purposes only. It has not taken into account your personal circumstances or financial goals. If you wish to get more personalised advice tailored to your circumstances and financial objectives, please contact our friendly staff today.

Previously, individuals could not access their superannuation until they had reached their preservation age and a condition of release had been satisfied (which was usually retirement from the work force).

Regulations were introduced in 2005 to give effect to the “Transition to Retirement” (TTR) measure which allows individuals to gain access to their superannuation benefits after reaching preservation age while still working and before a condition of release has been met.

Your preservation age is not the same as your pension age. Your preservation age is the age at which you can access your super and depends on when you were born. You can use this table to work out your preservation age.

The TTR measure allows individuals to commence a retirement income stream (i.e. account based pension) while still working. The retirement income stream commenced is non-commutable, which means that the balance cannot be accessed until a condition of release is satisfied. There is a minimum 4% or maximum 10% yearly pension income limit of the account balance, as at 1 July each year.

Commencing a TTR pension can be very tax effective as income and capital gains are tax free and the pension payments are concessionally taxed for those under age 60. Pension payments become tax free for those over age 60.

A popular strategy used by those who have reached their preservation age and intend to keep working has been to use a TTR pension to in fact increase their overall super nest egg whilst still maintaining their cash flow requirements.

This strategy involves:

• Arranging with your employer to sacrifice part of your pre-tax salary directly into your super fund,
• Convert most of your super into a TTR pension account, and
• Using the regular payments from the TTR to replace the income you sacrificed into super.

By taking these steps, it’s possible to accumulate more money for your retirement, due to a range of potential benefits. For example:

• Salary sacrifice super contributions are generally taxed at up to 15%, rather than at marginal rates of up to 49%,
• Investment earnings in a TTR are tax-free, whereas earnings in a super fund are generally taxed at a maximum rate of 15%, and
• The taxable income payments from the TTR pension will attract a 15% pension offset between preservation age and 60.

See how it works below:

Assumptions:

SPOILER ALERT! In the 2016 Federal Budget, the government proposed that from 1 July 2017, earnings from a TTR pension will no longer be tax-free. The earnings will be taxed at up to 15%, the same as if they were in accumulation phase. Whilst this proposed measure does take some of the gloss off the TTR strategy it is still a worthwhile strategy, but in more limited circumstances.

If you’re considering taking advantage of the TTR pension/salary sacrifice strategy, or considering reviewing an existing strategy, then we recommend you seek advice on the merits of such a strategy for your personal circumstances, especially the implications post-30 June 2017.

Are you interested in getting your TTR pension/salary sacrifice strategy reviewed or started? Contact us for your free initial consultation today, one of our friendly advisers would be delighted to speak with you.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s Individual objectives, financial situation or needs.  Before acting on anything in this article you should consider if it is appropriate for you, having regard to your objectives, financial situation and needs.

With interest rates at historical lows, investors now have to work extra hard to achieve a decent return on their money. But don’t forget that it is the after-tax return that counts – which is why investors with money invested in Australian shares can benefit from gaining an understanding of the Dividend Imputation System and how Franking Credits work.

Dividend imputation was introduced in July 1987, one of a number of tax reforms by the Hawke/Keating Government. Prior to that shareholders suffered double taxation on their dividends. That is, first the companies paid tax on any profits they had made, then the shareholders were taxed again at their marginal tax rate when they received these tax-paid profits in the form of dividends. This double taxation was overcome through the introduction of the Dividend Imputation System.

The word “impute” means to “give credit for” and this is exactly what the imputation system does. It allows shareholders to receive credit for the tax already paid by the company at the 30% company tax rate, and pay tax only on the difference between that and their own tax rate. This means for an individual on the top marginal tax rate of 49% (including Medicare & Budget Repair Levy) will only pay the difference which is 19%.

Since 2000, provisions have been made to receive franking credits back as a tax refund where the tax rate is less than the company rate. Therefore, for a super fund in pension phase, where the tax rate is nil, the full franking credit will be refunded by the tax office.

Let’s take a look at this concept in more detail by using an example.

The Beauty of Franking Credits

Company XYZ Holdings Pty Ltd makes a profit from its business activities of $10,000 which is fully taxable. It pays tax at the current company tax rate of 30% which equates to tax paid of $3,000, leaving a $7,000 after-tax profit. The company can either reinvest some or all of this money back into the business or pay out some or all to shareholders as a dividend. In this example, XYZ Holdings Pty Ltd decides to pay out all profits to shareholders.

If there are 10 equal shareholders, each receives an after-tax dividend of $700, with a $300 franking credit attached (the tax paid by the company). Since the profits associated with the dividends have been fully taxed, the after-tax dividends are said to be 100% franked or fully franked.

The grossed-up dividend amount is $1,000 ($700 plus the $300 franking credit) and is included in the shareholder’s assessable income. Tax is then payable at the shareholder’s applicable marginal tax rate. The tax paid by the company (franking credit) is then used to offset the shareholders tax payable.

The table below shows the effects of taxation by comparing 5 individuals, all on different individual and superannuation tax rates:

*The above rate does not include the Temporary Budget Repair Levy; which is payable at a rate of 2% for taxable incomes over $180,000 to 30/06/2017.

Individuals 1, 2 and super fund members in accumulation or pension phase all receive tax refunds due to the tax rates being less than the company tax rate of 30%. The higher income earners, individuals 3, 4 and 5 have to pay tax on their $1,000 dividends but they have both reduced the tax payable due to the franking credits.

If you are interested in learning more, please contact us today. One of our friendly advisers would be delighted to speak with you.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.