Record and report distributions of your business profits

One of the main ways you can take money from your company is through a distribution of profits. 

If you are a shareholder, you can choose to take money from a company as a formal distribution. A company can pay a distribution of its profits to its shareholders, which is known as a dividend. The dividend may have a franking credit attached – it is the amount of tax already paid by the company on its profits and it’s passed on to you for inclusion in your tax return, to offset your income tax liability.

If the company is distributing its profits through franked dividends it must issue a distribution statement at the end of each income year to everyone who receives a dividend. It must show the amount of the franking credit attached to the dividend and the extent to which it’s franked (or the amount of tax already paid on it by the company). The company may need to lodge a franking account tax return. The company cannot claim a deduction for dividends paid as these are not a business expense, but rather a distribution of company profit.

If you are thinking of distributing profits through your company, please seek advice from your professional adviser and make sure you are setting things up in the best way for your business situation. You can also contact the ATO for more information.

If a company is distributing dividends to you as a shareholder, you must report the dividends or payments and any franking credits that you receive in your income tax return. You may have to pay income tax on the dividends you are paid or, alternately, you might receive a refund of any excess franking credits if they exceed the amount of income tax you have to pay.