Dividends paid by Australian companies are included in your assessable income in the financial year you receive them. Australian dividends are unique in that they often carry franking credits — credits for the corporate tax the company already paid on its profits. These credits can reduce or eliminate your personal tax on the dividend, and if the credits exceed your tax liability, the excess is refunded by the ATO.
What Is a Dividend?
A dividend is a distribution of a company’s profits to its shareholders. Australian companies generally pay dividends twice a year (interim and final). Dividends can be:
- Fully franked — the company paid 30% (or 25% for base rate entities) corporate tax on all the profits being distributed, and passes the full tax credit to shareholders
- Partially franked — some corporate tax was paid; a partial credit applies
- Unfranked — no corporate tax credit; the dividend is simply taxable income with no offset
How Dividends Are Taxed — The Gross-Up Process
When you receive a franked dividend, you do not simply include the cash amount in your income. Instead, you gross up the dividend to include the attached franking credit, then receive the credit as an offset against your tax.
$$\text{Assessable income} = \text{Cash dividend} + \text{Franking credit}$$
$$\text{Tax payable} = \text{Assessable income} \times \text{Marginal rate} - \text{Franking credit}$$
Worked Example — Fully Franked Dividend
An investor receives a $700 fully franked dividend from a company that paid 30% company tax.
| Amount | |
|---|---|
| Cash dividend received | $700 |
| Franking credit (30/70 × $700) | $300 |
| Assessable income (grossed up) | $1,000 |
| Tax at 34.5% marginal rate (32.5% + 2% Medicare) | $345 |
| Less franking credit | −$300 |
| Net tax on dividend | $45 |
The investor’s effective tax on the dividend is just $45, despite receiving $700 in cash — because $300 in corporate tax has already been paid.
If Your Rate Is Below 30%
If your marginal rate is lower than the company tax rate, the excess franking credit is refunded:
| Amount | |
|---|---|
| Assessable income | $1,000 |
| Tax at 0% (income below tax-free threshold) | $0 |
| Less franking credit | −$300 |
| Refund from ATO | $300 |
A retiree with no other income receives the full $700 dividend cash plus a $300 refund from the ATO — $1,000 total. This is a powerful feature of the Australian imputation system for low-income investors and self-managed super funds.
Franking Credit Rate — 30% or 25%?
The franking credit rate depends on the company tax rate applicable to the paying company:
| Company type | Tax rate | Franking credit rate |
|---|---|---|
| Large company (turnover ≥ $50M) | 30% | 30% |
| Base rate entity (turnover < $50M, passive income ≤ 80%) | 25% | 25% |
Most ASX 200 companies pay 30% company tax. Smaller ASX-listed companies may pay 25%, so their dividends carry smaller franking credits.
Unfranked Dividends
Unfranked dividends carry no franking credits. They are simply included in your assessable income at face value and taxed at your marginal rate with no credit to offset the tax.
Example: $700 unfranked dividend at 34.5% marginal rate:
- Assessable income: $700
- Tax: $700 × 34.5% = $241.50
Compare this to the $45 net tax on the same fully franked dividend above — this illustrates why franking credits are so valuable.
Dividend Reinvestment Plans (DRPs)
If you participate in a Dividend Reinvestment Plan (DRP), new shares are issued instead of cash. You still receive assessable income equal to the market value of the shares on the dividend payment date — even though you received no cash. The franking credits (if any) are still available as offsets. The DRP shares also have a cost base equal to their issue price, which becomes relevant when you sell them later.
Dividends from Foreign Shares
Dividends from foreign companies are generally included in your assessable income. No franking credits apply (they are an Australian system). Foreign withholding tax deducted at source may be available as a foreign income tax offset in your Australian tax return.
When Dividends Are Taxed
Dividends are taxed in the financial year they are paid or credited to you — not when they are declared. Check the dividend payment date on your statement to confirm which financial year to include it in.
Related Articles
- Franking Credits Explained — Dividend Imputation
- Tax on Shares in Australia
- How to Report Share Income on Your Tax Return
- Tax on Investments hub
- Taxes hub
Frequently Asked Questions
Do I need to declare dividends if I reinvested them through a DRP? Yes. DRP shares are treated as receiving a cash dividend (assessable income) and immediately using it to buy shares. The dividend amount must be declared in your tax return even though you never received cash.
Are special dividends taxed the same as ordinary dividends? Generally yes — special dividends (one-off distributions) are treated as ordinary dividends and are taxed in the same way, including any franking credits attached.
What records do I need for dividends at tax time? Keep your dividend statements from the share registry (e.g., Computershare, Link Market Services). These show the cash dividend, franking credits, and record date. The ATO’s pre-fill service may populate some of this information, but you should verify it against your own statements.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent. Find one through the Tax Practitioners Board register.