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Franking credits and my allocated pension account

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I have a SMSF made up of shares and most pay fully franked dividends. What happens to these franking credits when I go into an allocated pension account?

When you’re in the accumulation phase, franking credits, which are attached to your dividend payments, reduce the tax payable on what a super fund pays tax on, namely, your taxable contributions and any income made by the fund.

When you move into pension phase and no tax is paid, those wonderful tax credits come as a refund to the fund.

By the way, even those who pay tax because they’re not fully retired and/or they have not met a condition of release for their fund to start paying out could actually get a tax refund for their SMSF. This happens when the franking credits are bigger than the tax due to be paid by the SMSF. And this is why many SMSF trustees buy shares that pay fully franked dividends.

For those wondering what fully franked means, it simply means the company has paid the company tax on their profits, which is 30 per cent and which is greater than the 15 per cent tax super funds pay. Some companies that earn most of their profits overseas could pay unfranked or partly-franked dividends.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, November 10, 2011

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