A dividend is the taxpayer’s share of the company distributed profit according to the number of shares the taxpayer owns in that company.
Dividends paid by resident companies are franked, unfranked, or partly franked.
Unfranked dividend Share of the profit where no company tax has been paid
Franked dividend Share of the company profit where company tax has been paid
Franking credit Company tax paid on the franked dividend
Partly franked dividend The rate is less than the company tax rate
Shareholders who receive dividends will receive a dividend statement from the paying company advising:
• date dividend payable
• the amount of the dividend that is franked
• an amount known as the FRANKING CREDIT (formerly imputation credit or imputed credit)
• the amount of the dividend that is unfranked
• the amount of any TFN tax deducted
• % rate of franking credit (can be less than the company tax rate)
The information for the tax return is taken from these statements or can also be found on the Tax Agent’s Portal (if the shareholder has
supplied their TFN to the paying company).
EXAMPLE
The dividend advice on the following page from ABC Limited shows that the taxpayer received an $87 franked amount and has a franking
credit of $37.29.
The assessable income included on the shareholder’s tax return is the total of the dividend payment and the franking credits. These amounts
are shown below on the tax return extract
NOTE
Dividends are always declared in the year they are paid, rather than the year to which they relate.
EXAMPLE
Logan receives a dividend statement that has a payment date of 30 September 2022. The dividend statement received by the company notes
that this payment represents the final dividend for the half year ended 30 June 2022. This payment will be declared in the 2023 tax year.
FRANKING CREDITS
The amount of the franking credit is not actually paid to the taxpayer but must be included in the tax return as income because it is
constructively received. The tax return requires that gross income be declared (the amount before tax), while a franked dividend represents net
income, after tax is paid by the company. By including both amounts on the return, the full grossed up income is declared. The franking credit
will then be allowed as a tax credit to the taxpayer on the assessment notice when the tax return is processed.
The franking credit is calculated by the companies themselves and recorded on the dividend statement. The equation used is:
franking credits = dividend amount x (company tax rate / (1 – Company Tax Rate))
For most companies, the company tax rate is 30%.
If, in the example on the previous screen, the taxpayer knew that he had received a franked dividend payment of $87, but did not know the
franking credit amount, we could calculate the franking credit as follows:
franking credits = $87 x 30% / 70%
= $37.29
COMPANY TAX RATE FOR SMALL BUSINESSES
Some companies are eligible for a lower company tax rate. This lower rate now applies to any company where both of the following are
satisfied:
• The company has an aggregated turnover less than the aggregated turnover threshold ($25m for the 2018 year or $50m for the 2019 year
onwards), and
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• 80% or less of their assessable income is passive income, such as corporate distributions and franking credits on these distributions,
royalties and rent, interest, dividends and capital gains.
For these companies, the company tax rate is:
• 27.5% from the 2017-18 to the 2019-20 year
• 26% for the 2020-21 year
• 25% from the 2021-22 year onwards.
CALCULATING DIVIDENDS
It is important to record how many shares are held, including new shares acquired, if participating in dividend reinvestment, as the ATO
prefill does not include this information. This allows for dividend amounts and franking credit to be calculated in the absence of the dividend
statements.
Companies publish their dividend rates in many places including their website and the ASX (Australian Securities Exchange).
BONUS SHARES IN LIEU OF DIVIDEND
Dividend Reinvestment Schemes should not be confused with Bonus Share Plans.
Bonus Share Plans distribute bonus shares from an untainted Capital Account (previously called a Share Premium Reserve Account) in lieu
of receiving a dividend. Provided the bonus shares are paid from this account, the value is not taxable. Bonus shares received under these
schemes have no tax consequences until disposal, when the capital gain is calculated. This will be covered in a later Module
DIVIDEND REINVESTMENT SCHEMES
In some cases, the taxpayer does not receive a cash dividend but shares in lieu,
i.e. Dividend Reinvesting. This is another example of constructive receipt and so
dividends must still be declared as taxable income.
EXAMPLE
The amounts to be declared from the dividend statement below are franked
dividend of $4,200 and franking credit of $1,800. This advice also details the
number of shares purchased and the price (i.e. 43 shares at $96.44 per share).
This advice MUST be kept for Capital Gains purposes.
The details are shown on the tax return:
