How do people have franking credits explained to them in the most accurate of terms? It is a buzzword that has carried different interpretations depending on who is explaining and who is listening. Accountants and financial analysts will have their own feedback, but this is a chance to outline some key facts about what they are and why they matter.
System Designed to Eliminate/Reduce Double Taxation
When constituents are looking to have franking credits explained in the most basic terms, it is a way of ensuring that dividends from an individual or company’s earnings are not put through two phases of taxation, affording them a credit in the process. It is a means of the government compensating participants for their attempt to tax a collection of money twice. It was considered a very niche subject in years gone by, but it has been an area of further scrutiny by public officials and media entities as diverse opinions intervene in the matter.
The Process Impacts The Tax Return
The subject around taxable income is one that any accountant will focus on, whether it is for an individual or for a business. If they sit down with these specialists to have franking credits explained to them, there will be occasions where credits are directed to straight cash for the End of Financial Year annual return.
For example, if an individual receives 75c worth of a share but the company has already paid 25c of tax on it, then they are likely to be in a position where they can list the full $1 as income without it needing to be taxed twice. This is a sensitive process where strict regulations apply, but this is a way of earning back more money for investors through their tax return channel.
Facilitating More Growth in Investment
If there is one way to look at how these dynamics work and where franking credits explained makes sense, this is a strategy that helps to facilitate investment by shareholders. Those participants who have to pay additional tax on top of a personal dividend may very well walk away from the industry altogether. Should there be incentives where members are receiving 100% of their dividend without having to subject that money to government regulation, then there will be scope to look at a growing portfolio for residents and organisations that find value in the market.
The Process is Fluid & Political
There is every chance that members have had franking credits explained to them in some form or another, most commonly via politicians who have used the policy as a way of enticing interest in their party prospects. However, it has been an area of hot debate, especially during the 2019 Federal Election in Australia. This means that alternating governments with different philosophies and approaches have the power to influence how these credits are applied in future, using either direct cash payments or tax concessions as a means of compensating members.
Accountants, Agents & Financial Specialists Are Best to Offer Personal & Commercial Advice
There is no one-size-fits-all approach when it comes to how these measures are put in place and how they apply to client circumstances. To have franking credits explained accurately, it is beneficial to consult with accountants, financial analysts, consultants and trusted sources who don’t just talk about the topic in generalities, but they apply the current policies to the circumstances of the citizen or the commercial enterprise.
Summary
It is not the fault of anyone who is not in the financial sector or in government to be unaware of the intricacies of this policy. To have franking credits explained, it is beneficial to know the basics of the approach, where it is often applied and how people and businesses can take advantage of the system for their own benefit.
