Dividend Imputation

Dividend imputation is a tax system that allows companies to pass on tax credits to shareholders for the tax the company has already paid on profits distributed as dividends. This prevents double taxation, where both the company and the shareholder would otherwise pay tax on the same income. Shareholders receiving dividends can offset the imputation credits against their own tax liability, potentially reducing the overall tax they owe. Dividend imputation is used in countries like Australia and New Zealand to make tax systems more equitable for investors.

Example

A company in Australia pays a dividend of $1 per share, and the shareholder receives imputation credits, allowing them to reduce their personal income tax owed.