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Imputation lets shareholders receive tax credits with the dividends they receive, by allowing the company to pass on credits for the income tax it has already paid.

Companies keep track of how much income tax they pay and can attach this as an imputation credit to the dividends they pay out. The dividends are part of each shareholder’s income, but the imputation credit reduces their income tax liability. This allows the shareholders a credit for income tax the company has already paid, so company profits are not taxed twice.