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Dividend imputation credits
Dividend imputation credits (or tax credits) are essentially a credit back on your tax. You're required to pay tax on the dividend income you receive through owning shares. But, if a New Zealand company has already paid tax on its income, and then distributed the dividends to you, taxing you would be taxing the same profits a second time; the Government would be "double dipping".
The way it works, then, is that you pay the tax on your dividend income and claim a credit back based on the imputation credit attached to your dividend payment.
Dividends are either fully, partially or not imputed. The effect of the imputation credit will depend on your marginal tax rate and this may, potentially, affect your overall investment decision.
The following example assumes that
the company has 100% imputation credits attached.