How does a fully franked dividend reduce tax?
A. When an Australian Company pays tax at the Company tax rate of 30% the investor receives the full pre tax dividend as an income in their tax return and is taxed at their marginal tax rate. To stop double tax occurring the investor will receive the tax paid by the Company as a tax credit or fully franked dividend. Not all Companies pay fully franked dividends. If an investor is on the 30% tax rate then in effect they are receiving the dividend with no need to pay additional tax.
