Yes, my main investment income is from dividends, most of which are fully franked - in FY11-12 this totaled about $22,000 of franking credit. They are certainly an attractive part of dividends in Australia, and avoid the issues around double taxation of dividends.
However, I find it odd the way a lot of people think about franking credits. They are fully refundable, which means they should be thought of just like any other pre tax income, as the whole dividend, including the franking credit gets taxed at your marginal rate. I've got some of my investment through a trust, with myself and an investment company as the beneficiaries. Any dividends I get I send off to the company, which uses the franking credit to pay its company tax (and get added to its franking account). The neat thing is, should I need the money in future (presumably when my income is lower), the franking credit comes back to me as an individual. If my tax rate is below 30% at that stage, then part of it gets refunded.
Alas, from the ATO's perspective, re-investing a dividend (through a DRP) is still classed as income, so doesn't solve the tax issue!
My latest thought is to buy a house outright as a rental, take out a line of credit on it, for the same amount as my current margin loan. Pay out the margin loan. This would:
- Add some diversification in my income producing assets (albeit with lower yield than shares)
- Reduce the interest cost on my margin loan by about 1% - i.e. increase the net cash flow from the shares)
- Remove the potential of a margin call on the margin loan (well, unless Australian house prices really tank and banks start calling in mortgages for breaching their LVRs - if we see that, I think we might have more to worry about than asset allocation!)
Agree with you on the property bear - I've been saying that since ~2004, and thus far have been soundly proven wrong. Guess only time tells!