Dividend and Investment Tax in Australia

Australian resident individuals are taxed on dividend income, interest, and capital gains as part of their ordinary assessable income, subject to marginal income tax rates ranging from 0% to 45% plus a 2% Medicare levy, according to the Australian Taxation Office (ATO). Two features distinguish the Australian system from most peers: a dividend imputation (franking) regime that eliminates double taxation of corporate profits, and a 50% capital gains tax discount for assets held longer than 12 months.

For the 2025-26 income year (1 July 2025 to 30 June 2026), per ATO guidance, the resident individual marginal brackets and their cumulative tax payable are set out in the table below.

Source: ATO Tax Rates - Australian Residents. The 2% Medicare levy applies separately on top of income tax for most residents. The Low Income Tax Offset (LITO) of up to $700 reduces tax for lower earners.

How are dividends taxed in Australia?

Dividends paid by Australian resident companies are included in a shareholder's assessable income and taxed at the individual's marginal rate, according to the ATO. For the 2025-26 income year, dividend income is reported using the dividend statement issued by the paying company. Unfranked dividends carry no tax credit and are taxed in full at the recipient's marginal rate. Fully or partly franked dividends carry imputation (franking) credits representing company tax already paid on the underlying profit, which reduce the individual's tax payable on that income. Interest income from deposits, bonds, and other debt instruments is similarly fully assessable at marginal rates, with no concessional treatment available to individuals, per ATO guidance on investment income.

What are franking credits and how does dividend imputation work?

Australia's dividend imputation system, introduced in 1987, prevents corporate profits from being taxed twice - first at the company level and again in shareholders' hands. As the ATO explains, when an Australian company pays 30% corporate tax on its profits, it records the tax paid in a franking account. When distributing profits as a dividend, the company attaches franking credits representing that tax to the payment.

A shareholder receiving a fully franked cash dividend of $700 must gross up their assessable income by the $300 franking credit (calculated as $700 / (1 - 0.30) - $700 = $300), declaring $1,000 of assessable income. The $300 franking credit then offsets the individual's income tax calculated on that $1,000. Per ATO guidance, if the franking credit exceeds the individual's tax liability - common for low-income earners and retirees - the excess is refunded as cash. An individual with a 0% effective rate receiving the same dividend would owe zero tax and receive the full $300 credit as a refund. To be entitled to claim a franking credit, shareholders must hold their shares "at risk" for at least 45 continuous days around the dividend date, per the ATO's holding period rule (a small shareholder exemption applies where annual franking credits are below $5,000).

How is investment income and capital gain taxed?

Australia has no separate capital gains tax rate - capital gains are added to assessable income and taxed at the individual's applicable marginal rate, per the ATO. A net capital gain arises when total capital gains for the year exceed allowable capital losses. Capital losses may only be offset against capital gains (not ordinary income) and unused losses carry forward indefinitely. Interest, rental income, and trust distributions from managed funds are similarly included in assessable income at marginal rates, per the Australia country overview and ATO guidance on investment income declaration requirements.

What is the 50% CGT discount for assets held over 12 months?

Australian resident individuals who own a capital asset for more than 12 months before a disposal event qualify for a 50% CGT discount, according to the ATO. This means only half the net capital gain is included in assessable income. For a $200,000 gross gain on shares held for two years, after offsetting $20,000 in capital losses, the $180,000 net gain is reduced to $90,000 of assessable income before applying the individual's marginal rate. Per the ATO, the 12-month period runs from the date of acquisition (typically the contract date, not settlement) to the date of the disposal event, and days at each end are excluded from the count. The discount is not available to companies, does not apply to assets held for 12 months or less (the full nominal gain is assessable), and foreign or temporary residents are not entitled to claim it on most asset classes, per ATO guidance. Self-managed superannuation funds (SMSFs) qualify for a reduced one-third (33.3%) discount rather than 50%, per ATO rules.

All investment income - dividends, interest, capital gains, and distributions from managed investment trusts - is reported in the individual's annual income tax return lodged with the ATO. Qualified Australian tax professionals can assist with calculating franking credit offsets, applying the CGT discount correctly, and ensuring all investment income is correctly included in assessable income under current ATO rules.