Tax & Superannuation: Company Tax - Guides
Company Tax
4. Payment of Dividends
Last updated: 10 Jul 2015
- It is very important to understand how profits can be withdrawn from your company. Company tax law is complex in this regard.
- The most common way of withdrawing profits from a company is through dividends paid to shareholders.
- An imputation system operates which allows company tax already paid by the company to be ‘credited’ to the dividends paid to shareholders.
- These ‘franking credits’ can then be used to reduce the tax liability of the shareholder. Any excess of these franking credits will be refunded to the shareholder when they lodge their tax return.
- Excess franking credits can be more complicated if the shareholder is another company as:
- instead of a refund excess credits are converted into a loss; and
- this loss can be offset against other income of the shareholding company.
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