Tax on dividends
Dividends are taxed differently depending on whether you're a resident or non-resident of Australia.
This section explains the tax implications if you’re an Australian resident. If you're a non-resident, see Dividends paid or credited to non-resident shareholders.
Australian resident companies pay tax on dividends they pay to shareholders, this system is known as the ‘imputation system’. This is because the company may impute or attribute the tax they pay to you. The tax they allocate to you attaches to the dividends they pay as a franking credit.
The basis of the system is that if a company pays or credits you with dividends that 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 you pay on the dividends.
Franked dividends
A resident company, or a New Zealand franking company that elects 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.
Unfranked dividends
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 in your tax return.
Continue to: How non-share dividends are taxed
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