Dividend imputation is a system of corporate taxation used in Australia and New Zealand. Under dividend imputation, a company's shareholders are taxed on the company's profits, and the company receives a tax credit for any tax paid by the company on those profits. This system is designed to prevent double taxation of corporate profits.
In Australia, dividend imputation was introduced in 1987. Under the system, a company's shareholders are taxed on the company's taxable income, and the company receives a tax credit for any tax paid by the company on that income. The tax credit is known as a franking credit.
In New Zealand, dividend imputation was introduced in 1992. Under the system, a company's shareholders are taxed on the company's taxable income, and the company receives a tax credit for any tax paid by the company on that income. The tax credit is known as an imputation credit.
How much tax will I pay on my dividends? Dividends are generally taxed at a lower rate than other types of income, but the exact amount of tax you'll pay on your dividends depends on a number of factors, including your tax bracket and whether the dividends are qualified or non-qualified.
If you're in the 10% or 15% tax bracket, you'll generally pay 0% on qualified dividends. If you're in the 25%, 28%, 33%, or 35% tax bracket, you'll pay 15% on qualified dividends. And if you're in the 39.6% tax bracket, you'll pay 20% on qualified dividends. Non-qualified dividends are taxed at your marginal tax rate.
To learn more about how dividends are taxed, please see the IRS's page on the topic.
Who pay tax on dividends?
Dividends are distributions of a company's earnings to its shareholders, and are usually paid out quarterly. The shareholders who receive dividends are responsible for paying taxes on them. The amount of tax that must be paid depends on the shareholder's tax bracket. Dividends are considered taxable income, and are subject to the same tax rates as other types of income.
Why are dividends taxed twice? The tax code in the United States provides for what is known as "double taxation" of dividends. This means that when a corporation pays out dividends to its shareholders, the shareholders are then taxed on the dividends they receive.
The reason for this is that the corporation itself is already taxed on its profits. So when the shareholders are then taxed on the dividends they receive, it is effectively a second layer of taxation on the same income.
There are some arguments for and against this system, but the main reason for it is that it allows the government to collect taxes on corporate profits twice.
How much of dividend is tax free?
The answer to this question depends on the country in which you reside and the amount of dividend income you receive. In the United States, for example, dividend income is taxed at the federal level at a rate of 15 percent, but there is no tax on dividends at the state level. However, in Canada, dividends are taxed at both the federal and provincial levels. The federal tax rate on dividends is 15 percent, while the provincial tax rate varies depending on the province in which you reside.
What does 100% franking mean? Franking refers to the process by which a company can offset the tax paid on profits by distributing those profits to shareholders in the form of dividends. In order for a dividend to be franked, the company must have already paid corporate tax on that profit.
A company can frank its own dividends, or it can elect to have its dividends franked by another company. If a company elects to have its dividends franked by another company, the franking company will pay the tax on behalf of the dividend-receiving company.
The term "100% franking" means that the entire dividend has been offset by the tax that was paid on the profits that generated the dividend. In other words, the shareholder receiving the dividend will not owe any additional tax on that dividend.
It is important to note that in order for a dividend to be 100% franked, the company distributing the dividend must have a corporate tax rate of 30% or higher. If the company's corporate tax rate is lower than 30%, the dividend will only be partially franked.
Partially franked dividends are still subject to tax, but the shareholder may be able to claim a rebate for the portion of the tax that was already paid by the company.