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Tax Planning: Frankly there are better ways to distribute your profits

Tax planning allows an appreciation through estimating a clients' of the current year financial performance. Based upon this an accountant works out tax optimisation strategies for example the trust distribution, utilising company franking credits or restructuring the business. Usually this is done before the end of financial year around May or June. Only companies can use franking.

For a company the tax rate used to be 30%, so when company profits were taxed at 30% it creates franking credits. Later when companies pay dividends to shareholders, the franking credit of 30% of tax already paid is attached to the dividends. Depending on the tax threshold rate the receiver is on, they may receive the difference in franking credit back. This also reduces the tax paid on the incomes over the percentage already paid by the company. For example someone on 35% tax for their income would only need to pay the 5% additional. For a trust this also passes to each individual as per the former. This still franking measure applies under whatever the tax rate is at the time.

Franking offers particular benefits to those on low incomes or below the tax free threshold. For example at 60 you may withdraw $20,000 at a hypothetical tax free threshold (it is currently 18%). You may then additionally gain the $6,000 of franking credit paid by the company refunded to you directly. The benefits of this are self evident.

Your friendly neighbourhood Bean Counters are happy to assist you with how franking and other tax planning measures may benefit you or better manage your funds.

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