Franking Credits

[Graeme Nichols]

Colin Law wrote:
> 2009/7/7 Graeme Nichols <gnichols at tpg.com.au>:
>> Hi,
>>
>> I am wondering how to keep track of Franking Credits. It is easy enough to
>> split dividends to Unfranked and Franked components but a Franking Credit is
>> the tax paid, by the Company, on the dividend at the Company rate of 30% and
>> offsets the individual's tax liability on the dividend.
>>
>> It doesn't actually come FROM anywhere.
>>
>> How do you account for it here on GnuCash?
>>
> 
> I don't know exactly how your tax system work but you could increase
> the amount of the dividend received by the amount of the tax paid,
> then split the transaction and pay the credit out as tax.  The nett
> amount received is then correct and it appears as if you have paid the
> tax, which I think in essence is what is happening.  Something along
> those lines at least.
> 
> Colin

Hi Colin,

Our tax system is pretty rapacious as is most country's :-)

Dividends used to be taxed twice. The Company paid tax and then they 
were taxed again in the dividend recipient's hands.

That has now changed; The Company can either elect to pay the tax on the 
whole dividend, or part of the dividend, at the Company rate, 30%. The 
dividend, or that part of the dividend, that the tax has been paid on is 
called 'Franked' dividend. The dividend, or that part of the dividend, 
that the Company has NOT paid the tax on is called 'Unfranked' dividend. 
The tax that the Company has paid is called a 'Franking Credit'. It is 
equal to the amount of tax the Company has paid on the 'Franked' 
dividend, or part thereof.

As such, it is a tax credit that offsets the amount of personal tax the 
shareholder is assessed by the Australian Tax Office. If your assessable 
tax rate is 30% then the tax on the amount of 'Franked' dividend has 
already been paid. If your tax rate is below or above 30% then you 
either get a refund, which goes to offset the tax on the rest of your 
assessed income, or a bill for the outstanding tax on the 'Franked' 
dividend.

So, this 'Franking Credit' is tax that has been paid to the Australian 
Tax Office on one's behalf by the Company.

This needs to be kept track of because when filling in one's tax return 
dividends have to broken into 'Franked' & 'Unfranked'. The 'Franking 
Credit' has to be entered into the Tax form as well so it will be used 
to offset one's tax liability.

The question is: In double entry accounting there are two accounts 
involved. I can easily set up a 'Franking Credit' asset account but I am 
not sure of how to set up the other, or 'from' account.

I guess I could use Equity - Opening Balances or Equity - Franking Credits'.

I was wondering how other GnuCash users handle it.

-- 
Kind regards,

Graeme Nichols.
...
Registered Linux User 381781 (http://counter.li.org/)
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