Question:
I know that the small company tax rate will be reduced to 26% from the year 2021/22. So far, the company has franking account balance on 30/06/2020 as below:
Total profit $190,000 Tax (27.5%): $52250 all paid.
If the company wants to distribute $100,000 profit to its shareholders(two),
In this case, it is my understanding that the franking credit (FC) will be $27500.
Can the company pay more than the amount (27.5k)?
In 2021/22, when the company distributes the previous profit (90k), do I use 26% or 27.5 for the FC?
It is honestly very confusing for me to calculate the franking credit.
Answer
If you distribute a $100,000 (50k each) as a net dividend to its two shareholders, the situation for each shareholder (if 50% each) will be as follows:
Net dividend $50,000
Franking credit 18,965.50
Taxable dividend 68,965
The franking credit reflects the 27.5% company tax rate.
After 1.7.2021 we expect the franking credit rate will be 26% and this has been confirmed in the May Federal Budget.