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How dividends are taxed

Last updated 11 January 2005

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 by non-resident shareholders to see how the dividends you receive will be taxed.

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.

Franked dividends

A resident company, or a New Zealand company that has elected to join the Australian imputation system, may pay or credit you with a franked dividend. Franked dividends can be either fully franked - meaning that the whole dividend carries a franking credit - or partly franked - meaning that only part of the dividend carries a franking credit.

Unfranked dividends

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