Let’s look at an example. You’re the sole shareholder of your family company which qualifies as a small business entity.
Over the 2021/22 year you have drawn a wage of $50,000 (if this was your only income, net payable is $6,387 based on income tax of $6,717 plus Medicare levy of $1,000 less $250 for the low income tax offset and a further $1,080 for the low and middle income tax offset).
Your company made a taxable profit of $10,000 and paid $2,500 tax to the ATO (a tax rate of 25%). Your company then pays you the $7,500 left in cash as a fully franked dividend. Your taxable income for the year is shown in the table opposite.
In this example you’re on a higher marginal tax rate (32.5%) than the tax rate paid by the company at 25%. Accordingly, you will need to pay the difference in tax on the dividend received.
Therefore, the outcome is that you will need to pay further tax of 7.5% (plus 2% Medicare levy) on the dividend after the company has already paid $2,500 in tax.
If your marginal tax rate was less than 25% (or 30% if dividend paid by a company with a turnover greater than $50 million), a refund would be available representing the higher tax already paid by the company.