Franking credits (or imputation credits) are tax credits attached to dividends paid by Australian companies, representing company tax already paid on the profits being distributed.
Franking credits are unique to Australia's dividend imputation system. When an Australian company pays tax on its profits at the 25% or 30% corporate rate and then distributes those profits as dividends, the dividends carry franking credits representing the tax already paid. Shareholders include both the dividend and the franking credits in their taxable income, then receive a tax offset for the franking credits. If the shareholder's marginal tax rate is lower than the company tax rate, they receive a refund of the excess franking credits. This system prevents double taxation of company profits. For example, if a company earns $100, pays $25 company tax and distributes $75 as a fully franked dividend, the shareholder reports $100 in income but gets a $25 tax offset. Tracking franking credits is important for company tax planning and shareholder reporting. SortBooks helps by correctly recording dividend payments and maintaining accurate franking credit balances in Xero.
SortBooks helps with the bookkeeping behind franking credits by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing franking credits by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
A dividend is a distribution of profits from a company to its shareholders. It reduces the company's retained earnings and represents a return on the shareholders' investment.
Company tax (or corporation tax) is the tax levied on a company's taxable income. Rates vary by country and sometimes by company size.
A tax offset (or tax credit) directly reduces the amount of tax you owe, dollar for dollar. This is more valuable than a deduction, which only reduces taxable income.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.