Dividend imputation is a tax system designed to prevent the double taxation of company profits distributed to shareholders as dividends.
In this system, when a company pays tax on its profits, it can pass on a tax credit (often called a franking credit) to its shareholders along with the dividend payment. Shareholders can then use this credit to offset their own income tax liability, reducing or eliminating the tax they would otherwise owe on the dividend income.
This ensures that the income is only taxed once at the corporate level, or the individual level, but not both, making the process fairer and more efficient for investors.