Sunday 8 April 2007

Tax and the Joy or Franking Credits

I've started working through the last ten years of my tax returns to collate all the DRP and BSP stock issues, so I can get my stock transaction records up to date and estimate how much capital gains tax I'd have to pay if I liquidated my stock holdings to contribute the money into my SMSF next financial year. I took the opportunity to entry all the dividend information I've received so far this financial year. It was interesting to note how the total dividends received each year has slowly increased (this is partly due to buying some extra stocks as the bull market has reduced my margin loan gearing, and allowed me to purchase some additional stocks and retain a LVR of around 50%-60%). My records also show how more companies have paid fully franked shares in recent years - the % tax paid on dividends has slowly increased towards the 30% company tax rate:

Tax Year Dividends Franking Grossed Up Dividends Taxable Avg Income
Received Credit Dividends % Tax Paid Income Tax Rate

2003/2004 $10,039.90 $3,364.34 $13,404.24 25.1 % $60,396 25.3 %

2004/2005 $11,202.95 $4,000.30 $15,203.25 26.3 % $47,996 22.0 %

2005/2006 $12,954.82 $4,864.30 $17,819.12 27.3 % $56,078 27.3 %

2006/2007 $10,745.22 $4,017.47 $14,762.69 27.2 % $??,??? 2?.? %

This also shows how my taxable income has stayed the same or decreased slightly while my salary has actually been going up. This is mainly due to the size of my margin loans (and hence tax deductible interest) increasing in relation to my salary.

I don't know what my taxable income will be for this year - I usually pre-pay 12 months worth of my margin loan interest in June to bring forward the tax deduction. I may not prepay as large an amount this year, in case I wish to sell of most of my geared stock portfolio to reinvest the funds into my SMSF.

* The figures for the current tax year, ending 30 June, are not yet complete

Enough Wealth

No comments: