What is the benefit of imputation credits?
If you are eligible for dividends from an investment in shares in a company, those dividends may include imputation credits.
If you are eligible for dividends from an investment in shares in a company, you may receive franked dividends with attached imputation credits. You may also get imputation credits as part of a managed fund distribution which includes franked dividends.
Generally speaking, dividends sourced from company profits are assessable to the recipients, but the recipients are entitled to credits for Australian income tax paid by the company in earning those profits. As a result these tax credits can be offset against your tax liability. Any excess imputation credits are refundable to resident individuals, superannuation funds and other eligible taxpayers.
When you estimate the tax on dividends or trust distributions remember to:
- include in your assessable income the amount of the imputation credit on the distribution (gross-up); and
- claim a tax offset equal to the imputation credit.
Please note that the holding period rules requires the shares or units to which the distribution relates to be held at risk for a certain period (45 days). There is a small shareholder exemption for individuals whose tax offset entitlement does not exceed $5,000 for the income year.
Learn more about Tax
- What taxes on investments do I pay?
- What is CGT?
- What is the benefit of imputation credits?
- How is gearing tax effective?
The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and we strongly recommend you should seek independent professional tax advice.
Did you know?
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