The Government Give & Take

Changes in legislation by the Government often reminds us of the feeling of being a child in a lolly store. That pure bliss when we find all the lollies we want, we’re excited to run out of the store with bags of lollies in hand. Except, we are told that we can only choose one and the rest are swiftly taken from us and placed back on the shelf, leaving us upset and longing for that sweetness.

The income tax reduction to specified companies comes with some changes for shareholders. In the 2016 financial year, small companies could potentially frank dividends at 30% if sufficient credits were available, even though those companies were paying 28.5% on current earnings.

For the 2017 financial year, this concession is no longer available. Companies subject to the new 27.5% rate may only frank dividends to a maximum of 27.5%. This applies retrospectively to 1 July 2016, so any dividends already paid need to be corrected.

 

For the shareholder who may have received a $70 cash dividend in 2016, the franking credit available was 30% and the shareholder declared $100 income with a $30 credit tax offset. A taxpayer on the highest marginal tax rate would pay an extra $19 on that dividend.

 

In 2017 the same $70 cash dividend comes with a franking credit of $26.55 so total declared income drops to $96.55 and credit tax offset of $26.55. A taxpayer on the highest marginal tax rate will pay an extra $20.76 on the same cash dividend.

 

There are still many issues to be resolved with this new Legislation.

 

This will mean that some lollies may stay on the shelf for a little while longer.

 

Watch this space.