Dividend imputation is the Government's system of taxing dividends paid by Australian resident companies. Under the imputation system, the investor is entitled to a tax rebate in respect of "franked dividends" that are paid from the Franking Account of a company. The franked component entitles the shareholder to a rebate known as an "imputation credit".

As is the case with all rebates, the imputation credit cannot reduce the tax liability to a value less than zero nor can it be used to offset the Medicare Levy, which is calculated on total taxable income inclusive of the imputation credit. Note that dividends paid by companies, which have not paid Australian company tax, do not carry imputation credits and remain taxable in the hands of shareholders at full marginal taxation rates. Any excess franking credits not used to off set a tax liability will be refunded.