The refund applies to imputation credits attached to franked dividends paid on or after 1 July 2000. Franked dividends are payments made out of profits by an Australian resident company to its shareholders that carry 'imputation credits'.
When resident taxpayers receive franked dividends, they include the dividends and the imputation credits in their assessable income. Subject to certain anti-avoidance rules, resident taxpayers can then claim the imputation credits as a tax offset. The tax offset can be used to reduce the tax liability from all forms of income, not just from dividend income.
Prior to 1 July 2000, the tax offset could not create a refund. If taxpayers had any excess imputation credits available after their tax liability had been reduced to nil, the imputation credits were disregarded and could not be refunded. However, for dividends paid on or after 1 July 2000 excess imputation credits will be refunded to eligible resident individuals and certain other entities.