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Companies are treated like individuals, and as such, they are required to pay tax on their taxable income, usually at the rate of 30%. Shareholders of these companies are also taxed on the profits distributed to them by the company. In order to avoid double taxation, there is an imputation system in place which provides shareholders with credits for tax already paid by the company.
How does the imputation system work?
The imputation system works by providing shareholders of a company with a tax offset called a “franking credit” for tax paid by the company. This franking credit then acts to offset the tax payable by the shareholder on their individual tax return.
However, it is important to note that in order for the imputation system to apply, both the company and the shareholder must be residents of Australia.
Taxation of Company Distributions
Distributions made to shareholders form part of their assessable income- this includes dividends paid out of the company’s profits and also non-share dividends.
If you would like more information or assistance regarding Company Tax other tax related matters, complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.
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The Quinn Group operates Quinn Consultants, Quinn Lawyers, Quinn Financial Planning and Quinn Financial Solutions. The Quinn Group provides related information in regard to legal, accounting and financial planning issues. Liability limited by a scheme approved under Professional Standards Legislation* *other than for the acts or omissions of financial services licensees.