Lecture 10 taxation of investments and year end tax planning. If the company pays company tax, the dividend is then franked. Shareholders receive a credit for the tax paid and only pay the difference on their marginal tax: unfranked dividends do not receive a credit and are taxed at the full marginal rate. A recipient of a franked dividend includes the franking credit in their assessable income and receives an offset to reduce tax payable: this is called the gross up and credit (or gross up and offset) mechanism. If the dividend is not fully franked then the shareholder grosses up and credits only to the extent of the franking percentage. Franked dividend x imputation rate/(100 - imputation rate) Interest is taxed at the taxpayer"s marginal rate. Interest on borrowings can be offset against the interest earned when the money is invested. Securities when transferred may have capital gains and losses.