Q&A : Dividend Reinvestment Plans (DRPs)

Question:

 

I know when I choose a cash dividend I receive the benefits of a franking credit but what happens when I choose to re-invest the dividend in a dividend reinvestment plan? Do I still get Tax benefits from this setup?

 

 

Answer:

 

Dividend reinvestment plans (DRPs) are treated just as if you’ve received your dividend as cash, and then purchased shares with that money…. Except that someone else has done that for you (without charging you brokerage).

You still declare the dividend (and its franking credits) as part of your income tax return as if you had received a cash dividend. See more on franking credits here.

That way you get the tax benefit of the franking, and you also pay tax on the income.

Keep your dividend statement as well, as you’ll pay CGT on the disposal of the shares when you sell them (using the DRP price as the cost base).