Unfranked Dividend
A dividend paid from profits on which no Australian company tax has been paid, so no franking credits are attached.
An unfranked dividend is a dividend paid from profits on which the company has not paid Australian company tax. As a result, no franking credits are attached to the dividend. This can occur when a company has generated profits overseas (taxed in another jurisdiction), has tax losses that offset its Australian tax liability, or has earned income that is exempt from Australian company tax.
For shareholders, unfranked dividends are simply included in assessable income at their full cash value and taxed at the shareholder's marginal rate — with no offsetting franking credit. This means the effective tax rate on unfranked dividends is always the shareholder's full marginal rate, compared to the reduced effective rate on franked dividends.
Companies that commonly pay unfranked or largely unfranked dividends include those with significant overseas operations (where profits are taxed in other countries rather than Australia), companies in their early growth phase that have carried forward tax losses, and real estate investment trusts (REITs) that distribute income through trusts rather than as company dividends. When evaluating unfranked dividends, compare the cash yield directly with other unfranked income sources like bank interest, as neither benefits from imputation.