Franked Dividend
Candlefocus EditorFull franking occurs when a company's profits are sufficient to cover the dividend that has been paid. This means there is enough profit to pay a dividend and claim a tax credit - absolutely no tax is due on the dividend income.
Partial Franking occurs when a dividend is paid out of the profits of a company, but there is the additional cost of paying a tax on the difference from a reduced or non-taxable income. Even if the investor pays tax on the dividend, the investor still receives the full value of the dividend as the franking credit reduces their overall tax payable.
Franked dividends are an attractive option for investors as it allows for greater financial freedom as investors pay less tax. To qualify for franking, companies must be listed on either the ASX or another qualifying exchange, and the company must pay income tax in Australia.
In addition to reducing the tax burden, franking helps market stability by ensuring the dividend can be paid to investors without depriving them of too much of their income. Furthermore, the tax credits can be used to offset other income, resulting in less tax paid overall.
Franked dividends have become a popular way to invest in the stock market, providing investor protection and allowing for a more stable and competitive stock market environment. Companies and investors alike benefit from franking dividend payment, opening up a wider range of investment opportunities which can yield greater financial returns to investors in the long run.