Dividends, Imputation and Franking
Model Answers
Question 1 — Fully franked dividend
At a 25% imputation rate, the credit is $60,000 × 25/75 = $20,000. Grossed-up dividend = $80,000. Subject to the statutory conditions, the shareholder includes $80,000 and receives a $20,000 offset.
Question 2 — 30% imputation rate
Credit = $70,000 × 30/70 = $30,000. The grossed-up dividend is $100,000.
Question 3 — Franking account
The franking account records the company’s available franking capacity. Franking a distribution creates a debit. Over-franking beyond available credits can cause a year-end franking deficit and franking deficit tax. The company must manage statutory capacity rather than treating franking as an optional label.
Question 4 — Benchmark
Division 203 generally requires distributions in the same franking period to be franked at the benchmark percentage. Selectively fully franking one class of distribution while leaving another unfranked can breach the benchmark rules unless a statutory exception applies.
Question 5 — Shareholder rate
The gross-up and credit are the same for the same franked distribution, but each shareholder’s marginal tax rate, losses, offsets and other income differ. The credit is integrated into each shareholder’s own tax calculation, so the final amount payable/refundable can differ.
Question 6 — Unfrankable distribution
Franking only applies to frankable distributions. A payment may instead be a capital return, loan, repayment, Division 7A deemed dividend or another excluded amount. The legal character controls whether the imputation system is available.