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Dividend options for AFIC shareholders: DRP and DSSP
Dividend options for AFIC shareholders: DRP and DSSP

Dividend options for AFIC shareholders: DRP and DSSP

One of the benefits of investing in AFIC is the access to fully franked dividend payments.

While cash payments can be great income stream for investors, some shareholders may wish to us to use these dividends to reinvest in AFIC. W offer two options for dividend reinvestment: our Dividend Reinvestment Plan (DRP) and Dividend Substitution Share Plan (DSSP).

At a high level, both the DRP and DSSP offer shareholders the ability to reinvest their dividends back into the company to purchase additional shares. The main difference between the two plans s that the tax obligation.

What is the Dividend Reinvestment Plan (DRP)?

The DRP is an easy way to accumulate additional shares through reinvesting dividends, allowing participants to enjoy the benefits of compound returns over tie without brokerage costs. It's entirely flexible and participants can join or withdraw at any time.

There are tax obligations associated with the plan. The Australian Tax Office requires investors declare the dividend to acquire extra shares as income, and investors must pay tax on that. However, investors still receive franking credits can continue to obtain a tax deducting relating to LIC capital gains.

What is the Dividend Substitution Share Plan (DSSP)?

Similar to the DRP + DSSP offers investors a straightforward mechanism to reinvest their dividends automatically. However, unlike, the DRP. participants in the DSSP don't pay income tax on the dividends that are reinvested.

For Australian resident taxpayers, no income tax is payable on DSSP shares at the time of receipt of the dividend and, as the shares allotted under the DSSP aren't considered to be a dividend, investors don't receive franking credits or LIC capital gains deductions. Note that the tax rules differ in New Zealand and other jurisdictions.

The DSSP could be a good option for shareholders in Australia looking to defer tax liabilities until they sell their AFIC shares. Additionally, shareholders on a high marginal income tax rate may find the DSSP suitable. Conversely, shareholders on lower tax rates, such as those in self-managed super funds, may find the DRP more aligned with their needs.

Shares allocated under the DSSP rank equally with all AFIC's other fully paid ordinary shares.

Like the DRP, participants in the DSSP don't need to pay brokerage, GST or other transaction costs for shares allocated under the plan.

Participants in the DSSP is voluntary, and investors can choose to contribute all, part or none of their dividend entitlement to the DSSP, and can withdraw from the plan at any time.

Deciding if the DRP or DSSP are right for you

AFIC is not authorised to give tax advice. It's therefore important for shareholders to seek their own advice from their accountants and tax advisors to understand if the either of the DRP or DSSP are appropriate for their personal financial circumstances.

For more information on either plan, please read the DRP Rules and the DSSP Rules.

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