When is dividends tax payable

Significantly, whether you hold shares in a private company or a publicly listed one, the rules about how you're taxed on any dividends you receive as a shareholder are essentially the same. Recognising that it would be unfair if shareholders were taxed again on the same profits, shareholders receive a rebate for the tax paid by the company on profits distributed as dividends.

These dividends are described as being 'franked'. Franked dividends have a franking credit attached to them which represents the amount of tax the company has already paid. Franking credits are also known as imputation credits. The shareholder who receives a dividend is entitled to receive a credit for any tax the company has paid. This can then potentially be claimed back as a tax refund. Investor 1 might be a super fund in pension phase which doesn't have to pay tax at all and which uses the franking credit refund to fund the pension payments they are required to make.

Alternatively, it could be an individual with no other source of income other than the dividends on these shares. If your marginal tax rate is above the corporate tax rate for the paying company, you potentially need to pay additional tax on your dividend.

If you want to invest via direct shares it's worth targeting shares that pay high dividends and full franking credits. This was regardless of whether you chose to reinvest them or were paid your dividends. This deduction resulted in investors being given a tax credit. Receive specially curated news and articles, and be the first to hear about exclusive rates and exciting offers when you sign up with us.

Current section current page title. What is dividend tax? What is the dividend allowance? What are the tax rates on dividends? How do I work out my dividend tax? When do I need to pay dividend tax? In the case of preferred stock, the stock must have been held in excess of 90 days during the day period beginning 90 days before the ex-dividend date if the dividends are due in a period of time longer than days.

The breakdown of taxes on qualified dividends is as follows:. Meanwhile, there are nonqualified, or ordinary, dividends. These dividends do not meet the qualified dividend requirements and are treated as short-term capital gains.

These nonqualified dividends are taxed at the same rates as an individual's regular income. Thus, in the chart above, nonqualified dividends are taxed at the "Tax Rate on Regular Income. Generally speaking, dividend income is taxable. This is assuming that it is not distributed in a retirement account, such as an IRA, k plan, etc. Here are two common examples of dividend income subject to taxes:. If you own a stock, such as ExxonMobil for example, and receive a quarterly dividend in cash or even if it is reinvested , it would be taxable dividend income.

These dividends would also be considered taxable dividend income. Internal Revenue Service. Dividend Stocks. Mutual Funds.

Mutual Fund Essentials. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. Companies can distribute some of their profits as dividend to their shareholders. Dividends are subject to tax.