Dividend imputation allows tax paid by the company issuing the dividends to offset personal taxes payable on the dividends.

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Dividend imputation is a tax system used in Australia and New Zealand. Under this system, the tax paid by a company on its profits is imputed, or credited, to its shareholders. When the company distributes dividends to its shareholders, the shareholders are deemed to have already paid tax on a portion of the dividends, equal to the company tax rate. This means that shareholders in these countries typically receive fully franked dividends, which carry a credit for the tax paid by the company. The franking credit can be used to offset personal taxes payable on the dividend income, effectively reducing the amount of tax the shareholder owes on their investments.

Dividend Imputation Allows Tax Paid by the Company Issuing the Dividends