Your Tax Return and Share Buy-Backs

During the 2006-07 financial year, listed companies in Australia bought back over 350 million shares according to the A.T.O. This amount to over $5 billion.

Shareholders who have participated in these buy-backs will need to work out any capital gain or loss and include this in their 2007 tax return.

Remember, dividends paid as part of any share buy-back must also be declared in your tax return.

Dividends: Franked v Unfranked

One common area of confusion seems to be the difference between franked dividends and unfranked dividends.

What is a dividend?

A dividend is the part of a company's profit which is distributed to shareholders. If you own shares in a public company, you probably have dividend income to declare.

What does it mean by 'franked'?

The franked portion of your dividend has already been taxed; the company has already paid tax on this profit at the 30% company tax rate. The good news for you is that you can claim an imputation credit of 30% of the franked amount (that way, the ATO is not double-dipping).

What about 'unfranked'?

The unfranked portion of dividends has not yet been taxed. This is treated the same as any other revenue, ie. it becomes a part of your taxable income.