How does the tax imputation system work with dividends?

• The tax imputation system effectively eliminates double taxation.
• The tax office treats dividends as if they were normal income and groups them together with your other personal earnings to determine your annual income amount.
• However you also receive an 'imputation credit' or 'franking credit’ that applies to the dividend amount.
• This credit represents the tax paid by the company. When it is passed onto you as an investor it lets the tax office know that tax has already been paid on that particular amount.
• This means that if your tax rate is 30% you will not need to pay any tax on the dividend amount because the company has already paid it.
• If your tax rate is higher than the flat 30% rate applied to companies then you will only be taxed the difference between the 30% and your personal marginal amount.