Tag: Australia

Here are the tax rates and how they apply to capital gains and dividends for Australian resident individuals.

It is important to note that the Australian financial year runs from 1 July to 30 June. The rates below are the most current available.

Individual Income Tax Rates (2024-2025)

The tax on both capital gains and dividends is determined by your marginal income tax rate. From 1 July 2024, the following rates apply to Australian resident individuals:

Taxable Income	Tax on this Income
$0 – $18,200	Nil
$18,201 – $45,000	19% of the excess over $18,200
$45,001 – $135,000	$5,092 + 30% of the excess over $45,000
$135,001 – $190,000	$32,097 + 37% of the excess over $135,000
$190,001 and over	$52,447 + 45% of the excess over $190,000

Important Note: In addition to the rates above, most resident taxpayers are also required to pay the Medicare Levy, which is 2% of their taxable income. Low-income earners may be eligible for a reduction or exemption.¹

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Capital Gains Tax (CGT) Rates

As explained previously, Australia does not have a separate tax for capital gains. The “rate” is your marginal income tax rate plus the Medicare levy. The key is how much of the gain is subject to tax.

• Assets held for less than 12 months: 100% of the net capital gain is added to your taxable income and taxed at your marginal rate.
• Assets held for 12 months or more: You are entitled to a 50% CGT discount.² This means only 50% of the net capital gain is added to your taxable income and taxed at your marginal rate.

Example with Actual Rates:

Let’s say you are in the 30% tax bracket with an income of $80,000. You make a $10,000 capital gain on shares.

• Held for 10 months (no discount):
  • Taxable gain: $10,000
  • Tax payable: $10,000 x (30% + 2% Medicare Levy) = $3,200
• Held for 14 months (50% discount applies):
  • Taxable gain: $10,000 x 50% = $5,000
  • Tax payable: $5,000 x (30% + 2% Medicare Levy) = $1,600

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Dividend Tax Rates

The tax rate on dividends is also your marginal income tax rate. However, the effective tax you pay is significantly altered by franking credits, which are tied to the corporate tax rate.³

• Standard Corporate Tax Rate: 30%
• Base Rate Entity Corporate Tax Rate: 25% (for companies with an aggregated turnover of less than $50 million)

The franking credit attached to your dividend is based on the tax rate the company paid.⁴

Unfranked Dividends:

These are simple. The entire dividend amount is added to your taxable income and taxed at your marginal tax rate plus the Medicare Levy.

• Example: You receive a $1,000 unfranked dividend. Your marginal rate is 30% (+2% Medicare Levy).
  • Tax payable: $1,000 x 32% = $320

Franked Dividends:

This is a two-step process to calculate your tax.

1. “Gross up” the dividend: Add the franking credit to the cash dividend you received to determine the pre-tax amount to include in your assessable income.
2. Calculate tax and apply the credit: Calculate the tax on the grossed-up amount, and then subtract the franking credit as a tax offset.

Example: Fully Franked Dividend from a 30% Tax Company

You receive a $700 cash dividend, fully franked.

1. Gross-up:
   • The company paid 30% tax, so the $700 represents the 70% of profit paid to you.
   • Franking Credit = ($700 / (1 – 0.30)) – $700 = $300
   • Grossed-up Dividend (taxable income): $700 + $300 = $1,000
2. Calculate Tax Outcome:
   • If your marginal tax rate is 47% (45% + 2% Medicare Levy):
     • Tax on $1,000: $1,000 x 47% = $470
     • Less franking credit: $470 – $300 = $170 tax to pay
   • If your marginal tax rate is 32% (30% + 2% Medicare Levy):
     • Tax on $1,000: $1,000 x 32% = $320
     • Less franking credit: $320 – $300 = $20 tax to pay
   • If your marginal tax rate is 21% (19% + 2% Medicare Levy):
     • Tax on $1,000: $1,000 x 21% = $210
     • Less franking credit: $210 – $300 = -$90
     • Result: $90 cash refund from the ATO

Disclaimer: These examples are for illustrative purposes. Individual financial circumstances can vary, and you should consider seeking advice from a registered tax agent or financial advisor.