The income tax chargeable on a resident company is credited into a tax account which can be utilised to frank payment of dividends to shareholders. Income tax paid by a company is imputed to the shareholders by means of imputation credits attached to dividends.
Where the franking of payment of dividends exceeds the tax credit available in the tax account, the deficit becomes a debt due which is payable by the company upon requisition.
The imputation system does not apply to a non-resident company and such companies are not subject to dividend franking.