One of the advantages of operating a self managed super fund (SMSF) is the ability to purchase investments that pay franked income. Being able to pick and choose your shares to ensure both maximum tax efficiency and a diversified portfolio is one of the big selling points of managing your own superannuation fund.
Franking credits from dividends can eliminate or reduce the tax you have to pay on your SMSF’s earnings, including any capital gains your fund may receive. The key issue around imputation credits is the fact that the income tax rate for super funds is only 15%, while imputation credits from fully franked dividends can be as high as 30% of the gross dividend. This means that the imputation credit accounts for the tax payable on the dividend received and leaves an excess to be used to reduce the other tax payable by the fund.
For example, consider a SMSF that holds BHP and CBA Shares:
Dividend Imputation Credits Taxable Income
In this example, if there is no other income to be offset, the fund will receive a refund of $471 from the ATO.
An important fact to note here is that a SMSF must hold the company shares for at least 45 days (plus the day of purchase and day of disposal) to be entitled to franking credits. The 45-day rule applies to SMSFs regardless of the amount of franking credits. $5000 ceiling exemption applied to individuals (45-day rule does not apply to INDIVIDUALS whose total franking credit entitlement for a financial year is below $5000) does NOT apply to SMSFs because a SMSF is not a natural person.
How SuperHelp can Help ?
Superhelp can help you in the setup and annual administration of your SMSF so you can start investing in your own SMSF today!
Please call us for more information on 1300 736 453.
The information contained in the article may not be appropriate to your individual needs therefore you should seek personal financial advice before making any financial or investment decisions.