How do I manage my dividends?
When a company makes a profit it can choose to either retain some of it for future expansion or it can make a dividend payment to shareholders. Understanding your options is the key to staying tax effective with your investments.
ASX companies who choose to pay dividends generally do so twice a year, usually as an 'interim' dividend in July and a 'final dividend' in December.
Dividend statements
When you receive a dividend from a company, you will receive a dividend statement. The dividend statement will advise you of:
- Dividend amount
- Whether the dividend is franked, unfranked or percentage franked
- Amount of franking credit
- Tax amount withheld
You should retain any dividend statements for tax purposes.
Types of dividends
Dividends may be fully franked, unfranked or partially franked.
Franked dividends are payments made to shareholders on which the company has already paid tax. These payments carry franking credits.
A franking credit is your share of the income tax paid by a company on their profits.
Lodgement of Tax File Numbers (TFN)
If you do not provide a TFN to the company, you may be taxed at either the highest personal or the prevailing company tax rates.
Companies will request that you provide your TFN to avoid having tax withheld against your dividend.
You can provide your TFN directly to the company through the TFN or ABN, in the case of a company, notification form.
Dividend Re-investment Plans
Some companies offer a dividend re-investment plan where your dividends are re-invested as shares at a pre-determined price. In other words you are issued shares instead of money.
The issue of shares in lieu of a cash payment is taxable and you should retain any dividend statements for tax purposes.
Dividend Direction (Banking) Instruction
When you purchase shares in a company, you may be asked to provide banking details to the registry so that the company can electronically deposit dividends directly to your bank account.
The information on taxation is of a general nature only and is based on the continuation of present taxation laws, rulings and their interpretation. As individual circumstances differ, you should seek assistance from your taxation adviser.