I am somewhat surprised that the concept and tax practice relating to dividend imputation remains widely misunderstood over twenty years after it was first introduced. When imputation credits were first introduced this was an immediate tax break bonus for every single taxpayer in Australia who owned shares. This applied whether the shares were in a public company listed on the Stock Exchange or shares in a private company.

The common complaint among shareholders, especially of private companies, used to be that they were subject to “double taxation”. That reaction was understandable if there was a very close working arrangement between the owner of the company and the business that the company ran and the same person had to sign personal cheques and company cheques, both payable to the Taxation Office.

Subsequently a further significant change was introduced. Prior to that time imputation credits could be lost if there were no other taxes payable by the shareholder. This was most noticeable among pensioners. Starting with the 2002 tax year any excess franking credits (same as imputation credits) could produce a tax refund, even if no tax had been paid.

In simple terms the Tax Office will refund the company tax that has been paid by the company if the shareholder of that company does not have to pay any tax. It is not even necessary to complete a tax return to get this refund. There is a separate form with which you can make a claim.

There are probably thousands of Telstra and Commonwealth Bank shareholders in the country who could buy themselves a substantial Christmas present with this money.