Tabcorp 1 for 9 share offer

Mary&Mat, think of dividend re-investment plan like compounding interest in a term deposit. Just because you don't actually receive it, doesn't mean it's not taxable at the time it's issued. It's like your dividend re-investment plan, it's taxable at the point you receive the dividend. What you then choose to do with that dividend (have it paid into your bank account or buy new shares with it with the re-investment plan), the ATO doesn't care.

For example, you receive a fully franked dividend of $7,000. This has imputation credits of $3,000 (i.e. company tax rate of 30%). $7,000 is what you receive (either to be deposited into your bank account, or this is what you have available to re-invest). However your taxable income is $10,000 (the total of the amount you receive plus the imputation credits). You then get a tax credit of $3,000. So if you are not required to pay any tax, then you get a refund of $3,000. If you are in the 30% tax bracket you break even. If you are in the 37% bracket, then you'll be out of pocket $700 when you lodge your tax return (37% of $10,000 less the tax credit $3,000).

What someone (I think Alexlee) was trying to point out was if you compare your income you receive at the time of it being paid in this case $7,000 for the net dividend, then the fully franked dividends have the bonus of these tax credits attached to them which interest in a bank doesn't. So really, if you're going to compare a return on an investment (e.g. term deposit vs. dividends), I think you should gross up your dividend, because even though at the time you are only receiving $7,000, you get the bonus tax credit when you do your tax return.

I hope that helps a little bit. I'm with you, I don't like shares. It's not because they're not good, I believe they can be great if you study the share market and have some clue about it, but it just doesn't interest me that much. I see too many clients making massive losses, so for capital growth it scares me too much, although it might be an option later in life if I want to increase my income as the dividends are appealing and there's no work involved like with rental properties.
 
Thank you to all for your reading suggestions & to Biggles for taking time to explain some points to me.

Alexlee - I'm happy to study property. I never expected the answers to get handed to me on a plate. It was a bit of a hard slog at first getting my head around some of the terms used, but it was interesting & the possibilties exciting & I just kept reading til it started to make sense & the pieces of the puzzle were falling into place. Now I read all I can get my hands on, talk with similarly minded people & obviously use this forum.

Shares appear such a dry topic to me. I know they're exciting for some, but I just can't seem to get fired up about them. I don't expect it to be easy. However, i will keep reading & trying to learn more & then perhaps ask more valid quesitons. I do understand what you mean saying I lack a lot of knowledge & it shows!

Regards,
M&M
 
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