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How dividends are taxed

Last updated 26 July 2004

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, read the section Dividends paid or credited to non-resident shareholders to see how the dividends you receive will be taxed.

Dividends paid to resident 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 basis of the system is that if a company pays or credits you 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.

Franked dividends

A resident company may pay or credit you a franked dividend. These dividends carry 'imputation/ franking credits', a credit for the tax paid by the company. Franked dividends can be either fully franked-meaning that the whole dividend carries an imputation/ franking credit-or partly franked-meaning that only part of the dividend carries an imputation/ franking credit.

Unfranked dividends

A resident company may pay or credit you an unfranked dividend. There is no imputation/ franking credit attached to these dividends.