OpenMarkets Education

What is dividend imputation?

Dividend imputation – otherwise known as franking – is a system whereby investors benefit from the corporate tax paid by a company.

Currently, most companies pay tax at the corporate rate of 30% (less for those with an annual turnover less than $10 million).

With dividend imputation, Australian-resident shareholders are entitled to claim a tax credit (called a franking credit) on dividends received from a listed company that has paid Australian company tax.

The credits associated with franked dividends are essentially a tax credit against the shareholder’s tax liability. Investors who receive a dividend will pay income tax on the difference between 30% corporate rate and their own marginal tax rate.

Marginal tax rate^Tax payable on franked dividends
< 30%No tax payable; excess franking credits can offset other income tax
32.5%2.5%
37%7%
45%15%

^ excludes Medicare levy and other loadings

In cases where the investor’s marginal rate is less than 30%, the franking credits can be used to offset other income tax liabilities. If excess franking credits remain, they can be refunded via the investor’s annual tax return.

Non-resident shareholders are not entitled to a tax credit or refund of imputation credits and  are subject to withholding tax on any unfranked dividends they receive.

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