If you own shares in a company, you will generally be paid your share of the company's profits as a dividend.
In any income year you may receive both an interim and a final dividend. In most circumstances, you will be liable to pay income tax for that income year on the dividends you are paid or credited.
You must include in your assessable income dividends paid or credited to you. Your shareholder dividend statement should contain details of the date a payment was made to you - generally referred to on the statement as the payment date or date paid. It is this date that will determine which financial year the dividend is included in your assessable income. Where the dividend is paid by cheque, it is deemed to have been paid to you on the date the cheque was posted to you by the company - not on the date the cheque was received, banked or cleared.
A dividend can be paid to you as money or other property, including shares.
Dividend reinvestment schemes
Most dividends you are paid or credited will be in the form of money, either by cheque or directly deposited into a bank account. However, the company may give you the option of reinvesting your dividends in the form of new shares in the company - this is called a dividend reinvestment scheme. If you take this option, you must pay tax on your reinvested dividends. Keep a record of the market value of the reinvested dividend (at the time of reinvestment) to help you work out any potential capital gains or capital losses on the eventual disposal of the shares.
If you are paid or credited taxable bonus shares, the company issuing the shares should provide you with a dividend statement indicating the share value that is subject to tax. A company should also have informed you if it issued tax-free bonus shares out of a share premium account.
From 1 July 1998, bonus shares will be taxed as a dividend if the shareholder has a choice between a dividend and the shares, unless they are issued in certain circumstances by a listed public company which does not credit its share capital account. If you make a capital gain when you dispose of bonus shares that you receive on or after 20 September 1985, you may have to pay capital gains tax even if they are not taxed as a dividend. For more information, see chapter 5 of the publication Guide to capital gains tax.
Payments or other benefits you obtain from a private company in which you are a shareholder, or an associate of a shareholder, may be treated as if they were a taxable dividend paid to you. For more information, read the sections Deemed dividends and Transactions that will create deemed dividends and Amounts that will not be deemed to be dividends.
Dividends paid to you under a demerger that happened on or after 1 July 2002 are generally not included in your assessable income. This concession will apply automatically to eligible demergers unless the head entity elects that the dividend should be assessable for all shareholders. Where that election is made, you should include the dividend in your tax return as an unfranked dividend.
Generally the head entity undertaking the demerger will advise you whether a demerger dividend has been paid and whether it has elected that the dividend be assessable. In addition, we may have provided advice in the form of a Class Ruling specific to your demerger with this advice. If you are in any doubt contact us.
Distributions from a non-share equity interest that do not constitute a non-share capital return are called non-share dividends.
Franked dividends from a New Zealand company
From 1 October 2003, a New Zealand company that has elected to join the Australian imputation system may pay a dividend franked with Australian franking credits. Australian shareholders of a New Zealand company that has made such an election may be entitled to claim the benefits of the franking credits attached to the dividends. For more information, including information on how these dividends are taxed, see Trans-Tasman imputation: How to claim Australian franking credits attached to New Zealand dividends.
Note: Australian franking credits were formerly called 'imputation credits'.