Unfranked Dividends
are making me have to
pay tax in my tax return!

Understanding Unfranked Dividends and how they impact your Tax Return

There are two types of dividends you can receive from companies you have invested in – franked dividends and unfranked dividends.

A dividend is a share of the profit of the company you have invested in.

When you receive a franked dividend you also receive an imputation credit. An imputation credit is a credit for tax the company has already paid. This stops your money being taxed twice.

When you receive an unfranked dividend – this means that company was not able to give you any imputation credits on the money you are receiving. The company has not already paid tax on the money you are receiving.

Unfranked dividends are common when you invest in companies which do not pay much company tax because they have a lot of tax deductions available to them – so while they have money they are able to pay to their investors, they do not pay tax. If a company does not pay tax they are not able to give you a credit for tax they have already paid. This results in any profits you receive being Unfranked dividends.

It is very common for the dividends in mining companies to be unfranked dividends.

To avoid a shock when you lodge your next tax return – have a look at your dividend statements.

Was your dividend a franked or an unfranked dividend? If this is not clear, have a look to see if there is a Franking Credit amount listed. On the dividend statement this may also be called an Imputation Credit. If you cannot see an amount for either of these 2 things – you have most likely been paid an Unfranked Dividend.  You should put some money aside to cover the tax on this dividend.

Top Tip: When you are considering being on a Reinvestment Plan ask if the dividends are usually franked or unfranked.

If a company usually pays unfranked dividends

  • You will need to pay tax on these dividends
  • But you will not have received any money to cover this tax because your dividend has been reinvested in more shares.

To show you the difference between franked and unfranked dividends in your tax return please see below:

Tony has shares in Mining Company X.

The company pays a $70 dividend.

Franked Dividend

Mining Company X pays Tony a Franked Dividend of $70. His dividend statement says that he has received $30 in Franking Credits.

Tony has less than $37,000 of taxable income, so his tax rate for this dividend is $0.19.

Franked Dividend Example

Unfranked Dividend

Mining Company X pays Tony an Unfranked Dividend of $70. He has no Franking Credits

Tony has less than $37,000 of taxable income, so his tax rate for this dividend is $0.19.

Unfranked-Dividend-Example

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