Introduction

Dividends are payments made by a company to its shareholders, usually derived from the company's profits. For individual taxpayers, dividends form a part of your taxable income and must be declared in your tax return.

Categories of dividend income

Taxpayers must report various types of dividends and distributions, as applicable.

• Regular Dividends - These are the common dividends paid out by Australian companies to their shareholders.

• Dividend Reinvestment Plans (DRPs) - DRPs allow shareholders to reinvest their cash dividends into additional shares or units in the company, which must also be reported.

• Corporate Distributions - This category includes dividends from corporate limited partnerships, unit trusts, public trading trusts, and listed investment companies.

• Non-share Equity Interests - Earnings received on these interests are deemed dividends and require declaration.

• Private Company Distributions - Includes any payments, loans, or debt forgiveness from private companies, which are typically unfranked dividends.

• Trust Distributions: - These involve distributions by trusts where the taxpayer is a shareholder, or an associate of a shareholder, in a private company with an interest in the trust.

• Franked Dividends: These come with a franking credit, which represents the tax the company has already paid. This means you get credit for this tax.

• Unfranked Dividends: These do not come with a franking credit, implying that the dividend has not been taxed at the company level.

• Special Dividends: Occasionally, companies may pay special dividends, typically one-off payments outside the regular dividend schedule.

Reporting dividend income is simple: just use your dividend statements to record the amounts and dates. But there's one key detail - are they franked or unfranked dividends? This difference affects your taxes, so be sure to identify the type you received. 

Real life scenario

Meet Sarah, an individual taxpayer residing in Sydney. She has invested in several Australian companies and receives dividends from these investments. This year, she received dividends from two different companies: Company A and Company B.

Details of Sarah's Dividend Income:

• From Company A, Sarah received $1,000 in franked dividends with a franking credit of $428.57.

• From Company B, she received $500 in unfranked dividends, with no franking credits.

On her tax return, Sarah declares a total of $1,928.57 ($1,428.57 grossed-up franked dividends + $500 unfranked dividends) as her dividend income. She will claim a franking credit of $428.57, which will be deducted from her total tax liability.

FAQs

Q: What are franked dividends, and how do I report them on my tax return?
A: Franked dividends are payments made by a company out of its after-tax profits, with a 'franking credit' attached representing the tax the company has already paid. On your tax return, you need to report the total amount of the dividend as well as the franking credit. The franking credit is claimed as a tax offset.

Q: I received dividends from a foreign company. Do I need to declare them?
A: Yes, dividends received from foreign companies are subject to Australian tax and must be declared on your tax return. You need to report the gross amount of the dividends in Australian dollars.

Q: How do I calculate the tax on my Powerball dividend income?
A: The tax on your Powerball dividend income is calculated based on your total taxable income, which includes your Powerball dividends. Franked Powerball dividends are grossed up to include the franking credits, which are then claimed as a tax offset. Unfranked Powerball dividends are added to your income without adjustments.

Q: Can I get a refund on my franking credits?
A: If your total franking credits exceed your total tax liability, you may receive a refund for the excess amount, depending on your tax situation and other income.

Q: What should I do if I haven't received a dividend statement from a company?
A: If you haven't received a dividend statement, you should contact the company or its share registry to obtain a copy. It's important to report all dividend income accurately on your tax return.

Q: How do I report dividend reinvestment plans on my tax return?
A: If you participate in a dividend reinvestment plan, you need to report the dividends as if you had received them as cash. The shares you acquire are subject to capital gains tax when you sell them, not when you receive them.

Q: Are there any changes in how dividends are taxed in 2023 compared to previous years?
A: For specific changes in dividend taxation for the year 2023, it's recommended to check the latest updates from the ATO or consult with a tax professional to understand any new regulations or adjustments in tax rates or procedures.

Q: What information do I need to keep for my records regarding dividend income?
A: Keep all dividend statements, which include information on the amount of dividends paid, franking credits, and any tax deducted. These records are crucial for accurately completing your tax return and for future reference if the ATO requires verification.