Tax Return:: Dividend Income in Australia

Hello, this is your tax and super specialist, P&C Tax Professionals.

If you are considering investing in the share market, it would be worth noting how dividend income is taxed in Australia. So, let’s begin our discussion with the two types of dividends that currently exist in Australia.

<Franked Dividends>

Dividends can simply be interpreted as the allocation or distribution of a company’s profits to its shareholders. Moreover, franked dividends can either be:

- Fully franked (which implies that the entire dividend amount has a franking credit attached to it) OR

- Partly franked (which means that the dividend has both a franked amount and an unfranked amount).

Normally, you would receive a fully franked dividend if the company you are holding shares in has already paid tax on its profits. If you have received a partially franked dividend, this would mean the company you are holding shares in has only paid tax on a portion of its profits. The primary objective of the franked dividends is to eliminate double taxation by providing investors with a tax credit (referred to as a franking credit).

<Unfranked Dividends>

Contrary to franked dividends, unfranked dividends have no franking credits attached to them at all. If you have received an unfranked dividend amount, this means that the company you are holding shares in has not paid any tax on its earnings so it is important that you declare correctly what your franked and unfranked dividend amounts are on your tax return.

<Franking Credits>

Franking credits can be thought of as a type of tax credit that is allocated to shareholders when eligible companies distribute dividends from their after-tax earnings. These franking credits that are attached to franked dividends can be used as tax offsets when you lodge your tax return. Let’s go through a simple example to further consolidate our understanding.

Connor’s taxable income amounts to $25,000 which means that his individual income tax rate would be 19%. Throughout the financial year, he received a dividend of $140. In this case, his dividend will be treated on his tax return as follows:

Hence, when lodging your tax return, it is important that you have your dividend statement with you so that you can input the correct values for your franked dividend, unfranked dividend, and any franking credits you may have.

If you ever need assistance with lodging your tax return, P&C Tax can help you get your tax and super affairs sorted. Simply reach out to us on our official Facebook Page (P&C Tax Professionals – Australia) or alternatively, send us an email with your enquiry to pnctax@naver.com.

Thank you and bye for now!