Tax Planning: Turning Franking Credits into Paper Gold

At Paris Financial, we pride ourselves on being specialists in small business tax planning, catering to the unique needs of small business owners. Here, we practice good tax planning for our clients. And today, we’re focusing on a valuable aspect of tax that could be a game-changer, especially for retirees: maximising franking credits for retirees, or as we like to call them, ‘paper gold.

Tax Planning Specialists

We delve deep into the tax legislation, mining every last benefit we can find to legally boost our clients’ financial wellbeing. And for retirees, this approach can be particularly beneficial.

Franking Credits: A Retiree’s Treasure

Think of franking credits as nuggets of gold hidden within the complex structure of a company. Throughout their business life, small business owners accumulate not just wealth but also franking credits in their company. These credits represent the tax already paid by the company and are stored away like treasure in a franking account.

The Retirement Plan That Shines 

Let’s paint a picture: Dad and Mum have sold their business and are ready to savour retirement. They’re drawing a tax-free pension from their self-managed super fund post-60, thanks to smart planning and the right advice. But that’s not all they’re living on.

With their investments wisely placed in discretionary trusts, they’re well set up, employing effective retirement tax strategies to secure their financial future. Yet, in their own names, we allocate an extra $25,000 each from their company’s franking account.

The Golden Calculation 

Here’s how the planning happens:

• Dad and Mum each receive a dividend of $25,000.
• Attached to this is a franking credit of $10,700, which is the tax the company has already paid.
• This makes their taxable income $35,700 each.
• The tax on this would be $3,300, but here’s where the paper gold really glistens.
• The franking credit covers the tax due and leaves them with a refund of $7,400 each! 

The Fruits of Labor 

So, our retirees aren’t just enjoying their pension. They’re also getting a significant dividend from their company and a hefty tax refund, all thanks to the paper gold that’s been accumulating in their company over the years.

The Bottom Line 

This is tax planning at its finest, a strategy that helps retirees enjoy the fruits of their hard work and provides a golden finish to their business journey.

Interested in finding out how you can benefit from great tax planning with franking credits? Chat with our small business tax planning specialists today at Paris Financial.