How dividends are taxed
Dividends are taxed differently depending on whether the shareholder is a resident or non-resident of Australia.
This section explains the taxation implications for resident shareholders. If you are a non-resident then, to find out how the dividends you receive will be taxed, see Dividends paid or credited to non-resident shareholders.
Dividends paid to shareholders by Australian resident companies are taxed under a system known as ‘imputation’. It is called an imputation system because the tax paid by a company may be imputed or attributed to the shareholders. The tax paid by the company is allocated to shareholders by way of franking credits attached to the dividends they receive.
The basis of the system is that if a company pays or credits you with dividends which have been franked, you may be entitled to a franking tax offset for the tax the company has paid on its income. The franking tax offset will cover or partly cover the tax payable on the dividends.
A resident company, or a New Zealand franking company that has elected to join the Australian imputation system, may pay or credit you with a franked dividend. Dividends can be fully franked (meaning that the whole amount of the dividend carries a franking credit) or partly franked (meaning that the dividend has a franked amount and an unfranked amount). The dividend statement or distribution statement you receive from the company paying the franked dividend must state the amount of the franking credit and the amounts of the franked and unfranked parts of the dividend.
A resident company may pay or credit you with an unfranked dividend. There is no franking credit attached to these dividends.
If you receive an unfranked dividend declared to be conduit foreign income on your dividend statement or distribution statement, include that amount as an unfranked dividend on your tax return.