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Franking Credit Journal

 
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Old 11-08-2009, 01:27 PM   #1
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Franking Credit Journal

Hi all,

My family trust has received some franking credits (plus the cash franked dividends).

I am trying to post my journals in relation to the franking credits but not sure where the debit goes.

e.g.assume $100 franked dividend with $42.85 franking credit

DR Cash $100
CR Dividends (P&L) $100

DR ?? $42.85
CR Franking Credit (P&L) $42.85

Does this debit goes as "Difference in Accounting / Tax Account" within the Trust Capital section?

Many thanks
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Old 11-08-2009, 04:24 PM   #2
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Only Franking Entities are required to keep a franking account - i.e. resident companies.

However, a Trustee will need to keep a track of them to work out net income.

Also, the dividend source income will need to be tracked and accounted for separately if the Trustee wishes to stream the imputed franking credits.

Franking credits do not directly appear in the P&L, also closely held trusts will not be tax effect accounting normally.

Cheers,

Rob
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Old 11-08-2009, 08:22 PM   #3
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Many thanks Rob.

So are you saying that as a Trustee of the family trust, per my example of $100 franked dividend and $42.85 imputation credit, I only reflect $100 as dividend income in the Income Statement and therefore $100 is applied to the beneficiary account in the balance sheet.

But on the trust tax return, the $100 plus the $42.85 imputation credit is reflected for that beneficiary?

As a result, this would create a difference between the trust income and taxable income even though my trust deed defines net income as items that are taxable under the ITAA, so in reality the trust income should always equal taxable income.
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Old 11-08-2009, 09:16 PM   #4
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Nope ...

I just said that family trusts would not normally be required to prepare formal reports as per Accounting Standards.

If you want your double entry books to report dividend revenue as grossed-up so you will need a "tax benefit" type of asset account ... assuming you trust has made a FTE or your beneficiaries can use them, otherwise they are not an asset at all !!

However, you might wish to stream within the dividend class of income, for which you should also stream the relevant attached franking credits.

Cheers,

Rob
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Old 11-08-2009, 09:51 PM   #5
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Ok. I am still a little confused.

I understand that the trust is not required to prepare formal accounts but the trust deed stipulates that the trustee must keep accounting records and maintain some sort of system so that the beneficiary loan accounts are recorded, if ever questioned.

in any event, it seems i will in this case just apply the franking credit to a tax benefit type of asset account. and since the beneficiary will receive the tax benefit, i will then allocate the asset account against their credit loan beneficiary account as having been paid the credit (and so remove the asset franking type account). i think this sounds reasonable.

no FTE election has been made as the amount of franking credits is less than $5000, so the beneficiary is still entitled to them.

many thanks for your response.
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Old 17-08-2009, 06:35 PM   #6
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Quote:
Originally Posted by Swan View Post
in any event, it seems i will in this case just apply the franking credit to a tax benefit type of asset account. and since the beneficiary will receive the tax benefit, i will then allocate the asset account against their credit loan beneficiary account as having been paid the credit (and so remove the asset franking type account). i think this sounds reasonable.
Franking credits received can be applied in the way described in the financial accounts. Typically it is simply easier to leave them off the financial statements but obviously include them in the tax return of the trust. It saves time (fewer journal entries) and will not be contrary to your trust deed so long as your end of year distribution minutes reflect that the income on the income tax return is the income of the trust.

It is also good to keep them separate to the cash owing to the beneficiaries as per their credit balance beneficiary accounts. The amount in those accounts is what is actually owed to the beneficiaries (i.e. the distributions are only done one paper and the actual cash remains in the trust to be reinvested).

With the beneficiary accounts of minors such as children it is a good idea reduce their accounts every year for expenses paid on their behalf - such as school fees, sports fees etc - so they are not sitting there when they turn 18 with $20k to $30k owing to them!
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Old 26-08-2009, 11:28 PM   #7
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Originally Posted by Swan View Post
Hi all,

My family trust has received some franking credits (plus the cash franked dividends).

I am trying to post my journals in relation to the franking credits but not sure where the debit goes.

e.g.assume $100 franked dividend with $42.85 franking credit

DR Cash $100
CR Dividends (P&L) $100

DR ?? $42.85
CR Franking Credit (P&L) $42.85

Does this debit goes as "Difference in Accounting / Tax Account" within the Trust Capital section?

Many thanks
Not sure this is the right way to do it. I put it down as

DR Franking Credit (Current Assets) $42.85.
CR Franking Credit from Dividends (P&L) $42.85

Franking Credit (Current Assets) get cleared (CR) at distribution time. A bit like CR to Cash Account if the trust distribute cash.
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Old 26-08-2009, 11:49 PM   #8
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Thanks Cheeyan. Would the DR journal at distribution time go to the relevant beneficiary who receives the franking credits?
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Old 31-08-2009, 09:23 AM   #9
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Thanks Cheeyan. Would the DR journal at distribution time go to the relevant beneficiary who receives the franking credits?
If you mean the Beneficiary Loan Account then I would say no. Franking credits are claimed by beneficiary directly when they lodge their tax return. The trust doesn't quite keep them like other form of cash distribution.

As usual, I want to point out that I am not a qualified accountant. This is just my opinion..
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