Shares
Shares are very much misunderstood and are not as complicated or scary as they seem.
But if you are a avid reader of email share tips, the business section of the Sunday newspapers, buy and sell recommendations, numerous magazines of the ‘must have shares for 2006’ you may be confused with how you approach the market.
What is a share?
There are many different types of shares, but the type of share I will be referring to in this book is called an ‘ordinary’ share. By owning one ordinary share of a company, you become a shareholder and participate in the fortunes of that company.
As a shareholder of a well-managed company, you will be rewarded with a share of the company’s profits, or a dividend, normally twice a year—an interim dividend and a final dividend. The value of the share should increase in value as well. This is a capital gain.
The overall return from this asset class also gets better. A majority of blue-chip industrial shares can have a great tax advantage called dividend imputation, otherwise referred to as franking credits.
What are franking credits?
In 1987 dividend imputation was introduced. Previously, companies were taxed on their income and then paid you a dividend from the company’s net profit. This dividend would be added to the shareholder’s income which they would then pay tax on—so essentially this money was being taxed twice.
Now you receive a tax credit on the dividend equal to the amount of tax the company has already paid. Franking credits are displayed on your dividend statement, don’t forget to tell your accountant about these at the end of your tax year, you can claim the them. After all, it’s your money.
Buying shares is a simple exercise. You can buy shares in an Australian company through a stockbroker or an online stockbroker. The stockbroker or an online provider can set up with an account at no charge. A great resource to gain further information can be found on www.asx.com.au, the Australian Stock Exchange website.
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