Question

Condor Limited is listed on the ASX and earns part of its income in Australia, and part overseas where it is
required to pay tax overseas. The Australian company tax rate is 30 per cent. Condor Limited can provide
dividend imputation to Australian shareholders from Australian tax paid. Assume the shareholder’s
marginal tax rate is 37 per cent plus the Medicare levy of 2 per cent. The investor receives a 70 per cent
partly-franked dividend of $12,700

Find the income tax payable by the investor on the partly-franked dividend.
Then re-calculate the income tax payable if the dividend was fully franked.

Answer 1

Question 1). Solution :- Calculation of income tax payable on partly-franked dividend :-

Particulars	Amount ($)
Dividend received by investor (+) Franking credit (Note 1)	12700 3810
Gross income of investor	16510
Tax liability (16510 * 39 %) (-) Available franking credit	6438.90 3810.00
Tax payable by investor	2628.90

(Note 1) :- Franking credit = (12700 * 0.70) * 0.30 / (1 - 0.30)

= 12700 * 0.70 * 0.30 / 0.70

= $ 3810.

Question 2). Solution :- Calculation of income tax payable on fully franked dividend :-

= 12700 * 39 %

= $ 4953.

Conclusion :-

Income tax payable on partly-franked dividend	$ 2628.90
Income tax payable on fully-franked dividend	$ 4953.00