Is dividend income taxable in Australia?


  • The dividend income in Australia is taxable and an investor who receives dividends from a company is liable to pay tax on it.
  • A franked dividend is a form of arrangement made by tax authorities as it solely aims to eliminate the problem of double taxation.
  • When the dividend is paid with only a portion be franked, then it is called a partially franked dividend.

According to an estimate, more than one-third of the Australian population has either directly or indirectly invested in the stock market. A good chunk of these investors invest for the passive income in the form of dividends.

Image Source: Copyright © 2021 Kalkine Media

Whenever a company makes profit, the management decides on whether to retain that profit for future expansion plans or to distribute among shareholders in the form of dividends. It can also do both in a well-calculated ratio to cater to both the requirement of the shareholders and the need in the future by the company.

Is dividend income taxable in Australia?

However, one aspect of dividend income that most investors are unaware of is its taxation. A lot of investors ask this question; do I need to pay tax on my dividend income? Well, the dividend income in Australia is taxable and an investor who receives dividends from a company is liable to pay tax on it to the government.

Also, the tax treatment of dividend income for a publicly listed company and a private company is the same, therefore an investor needs not jump between different tax treatments for his dividends from a private company or a publicly listed company.

Read More: Which are the top five ASX-listed technology dividend stocks?

What is a franked dividend?

As mentioned earlier, the dividends received are considered to be an income and therefore it is taxable. However, there is a catch to it. Dividends are only paid from the profits of the company and a company’s profits are also taxable under the corporate taxation.

Therefore, before distributing dividends off that profit, the company pays tax to the government, after which the leftover profit is considered to be distributed as dividends. This leads to the problem of double taxation as the dividends which are distributed by the company have already been taxed by the government, and the  practice of investors again paying tax on this dividend income is needed to be avoided.

Image Source: Copyright © 2021 Kalkine Media

This is where the feature of a franked dividend comes in.  A franked dividend is a form of arrangement made by tax authorities that solely aims to eliminate the problem of double taxation. A franked dividend is essentially a dividend that comes attached with a tax credit. This tax credit is equal to the tax already paid by the company at corporate level, which helps to reduce the tax burden of the dividend-receiving investor.

The shareholder discloses the dividend and the franking credits as his income in his tax filings, but ends up being taxed on his dividend income only. Therefore, practically, an investor does not pay tax on his dividend income if it is fully franked, and this eliminates the problem of double taxation.

Read More: When does Westpac pay its dividends?

What are the types of franked dividend?

 Broadly, there are two types of franked dividends, namely, fully franked and partially franked. When the company pays tax on the entire dividend that is being distributed to the shareholders and subsequently investors receive a 100% franking credit attached with their dividend, then it is said to a fully franked dividend. The shareholder does not face any liability to pay tax on their dividend income.

Sometimes due to losses from preceding years or for other valid reasons, the company claims tax deduction. This enables the company to legally avoid paying a portion of tax on their profits in the year in which tax dedications are claimed. In this scenario, where the dividends are distributed off the profit which are not fully taxed at corporate level, the company is not able to attach a full tax credit but only a position proportionate to the tax paid.

When the dividend is paid with only a portion be franked, then it is called a partially franked dividend. The position of the dividend which is not franked remains unfranked. In this case, the tax liability on the shareholder arises on the dividend income to the extent of unfranked portion.

Read More: Five blue-chip stocks that pay high dividends

How franked dividend is taxed?

Let’s assume a shareholder X has received a dividend of $100 from the shares of ABC company. According to the total taxable income of X, he comes in the tax bracket of 30%. Therefore, X is liable to pay a 30% tax on the dividend received.

However, at the corporate level, the company has already paid full tax on the profits, making its dividend to be fully franked. Here’s how the tax treatment of his dividend income would look like

Read More: Which one is the best dividend ETF on the ASX

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.



Top Penny Picks under 20 Cents to Fit Your Pocket! Get Exclusive Report on Penny Stocks For FREE Now.



Rated 4.3/5 based on 904 Reviews at Google My Business
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK