Ann: Dividend/Distribution - WPL, page-15

*sigh* 

how is an unfranked dividend double taxed? An unfranked dividend is a result of no Australian corporate tax paid, so no tax has been paid in Australia. Thus you’re taxed at the beneficiary level. Unfranked dividend can occur via:

1. Difference between accounting and taxable profits. Ie Qantas had a taxable profit reduced to nil due to carried forward tax losses, thus paid no tax, and distributed the dividend via unfranked as no franking balance from no tax paid due to carried forward losses (fair enough too).
2. Difference between accounting and taxable profit for infrastructure related stocks. They tend to have different depreciation rates for infrastructure, so an accounting profit is generated, but a different and higher depreciation rate used for tax, which, wipes out taxable profit in its early years of operation. Really a timing difference, however as a result will pay no corporate tax at the beginning of its life and distribute as a result unfranked dividends. So the dividend is taxed at the recipient level, and is not taxed twice!!!
3. Or simply overseas earnings. At the company level a lot of foreign tax offsets will offset any tax payable in Australia, as tax was paid in the overseas country, ie USA. It also depends on the double tax agreement, or quite simply tax free for certain types of income from
ceetain countries. I won’t get into CFCs are it’s even more complex and most people I deal with find it hard enough to understand just franking. So I’m short, tax is paid overseas, no Australian tax paid due to double tax agreements and foreign tax credits, this avoids double taxation at company level. Company then has no franking balance, so pays out unfranked dividends. Like above the ultimate beneficiary then pays tax at their marginal rate. This isn’t double taxation.

Not allowing franking credit refunds for low taxed individuals or superfunds means the labor government is forcing you to be taxed, at a minimum of 30%. This is double taxation as these people or entities should be taxed at 0-15%, not 30%. If you’re not meant to be taxed, why is the government withholding 30% tax from you? That’s what labor is doing.