Franked Dividend

AAA

DEFINITION of 'Franked Dividend'

An arrangement in Australia that eliminates the double taxation of dividends. Dividends are dispersed with tax imputations attached to them. The shareholder is able to reduce the tax paid on the dividend by an amount equal to the tax imputation credits. Basically, taxation of dividends has been partially paid by the company issuing the dividend.

INVESTOPEDIA EXPLAINS 'Franked Dividend'

This concept is best illustrated by an example. Suppose you receive a franked dividend of $100. Assume the before-tax value of this dividend is $125 (this will depend on the company's rate of taxation). In other words, the company has to generate $125 of pre-tax profit to be able to disperse the dividend.

If your marginal tax rate is 30%, you will owe $12.50 in taxes on the franked dividend (($100) -($125 * (1-.3))= $12.5). If the dividend is unfranked, you will owe $30 on the $100 dividend ($100 * (1-.7)= $30. Essentially, the company pays a portion of the tax that you would owe if the dividend was unfranked. In Australia, these taxes are paid to the Australian Tax Office (ATO).

RELATED TERMS
  1. Dividend Imputation

    An arrangement in Australia and several other countries that ...
  2. Ex-Date

    The date on or after which a security is traded without a previously ...
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs ...
  4. Cum Dividend

    When a buyer of a security is entitled to receive a dividend ...
  5. Declaration Date

    1. The date on which the next dividend payment is announced by ...
  6. Payment Date

    The date on which a declared stock dividend is scheduled to be ...
Related Articles
  1. Fundamental Analysis

    The Perks Of Dividend Reinvestment Plans

    These plans offer shareholders a way to directly invest in some of the top companies without the commissions.
  2. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  3. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  4. When most investors begin planning for a steady income stream in retirement, they tend to gravitate towards fixed-income as a predominant asset class.
    Mutual Funds & ETFs

    Funds That Should Be On Every Investor’s Radar

    When most investors begin planning for a steady income stream in retirement, they tend to gravitate towards fixed-income as a predominant asset class.
  5. Though dividends are thought to realm of conservative investors, they deserve a place in all portfolios. Here are some of the best bets.
    Trading Strategies

    The Best Bets In Dividend Stocks

    Though dividends are thought to realm of conservative investors, they deserve a place in all portfolios. Here are some of the best bets.
  6. Capital gain refers to the increase in value of a capital asset or an investment security upon sale.
    Investing

    Understanding Capital Gains

    Capital gain refers to the increase in value of a capital asset or an investment security upon sale. In other words, if you buy company stock, real estate or fine art and then sell it for more ...
  7. Lifestyle inflation occurs when 'you earn more, you spend more', and your spending ends up matching your earnings. Thus, no savings remain.
    Budgeting

    Failing To Build Wealth Despite Making Big Bucks?

    Lifestyle inflation occurs when 'you earn more, you spend more', and your spending ends up matching your earnings. Thus, no savings remain.
  8. Investing Basics

    Why is it important to understand the Circular Flow Of Income when making investment decisions?

    Find out why investors should pay attention to a firm's circular flow of income model to measure its efficiency and evaluate its use of profits.
  9. Trading Strategies

    What's the safest way to invest in high-yielding dividend stocks?

    Learn about some of the most important safety factors that you need to consider before you invest in high-yielding dividend stocks.
  10. Chart Advisor

    A Multi-Asset Income ETF For Defensive Investors

    In light of market volatility and worries that stocks are overbought, one product worth noting is the Guggenheim Multi-Asset Income ETF.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center