Franking credits (also called imputation credits) are one of Australia’s most generous tax features for investors. They prevent company profits from being taxed twice — once at the corporate level and again when paid to shareholders. Here’s how they work in 2026.
What Are Franking Credits?
When an Australian company pays income tax at 30% (or 25% for base rate entities) before distributing dividends, shareholders receive a “tax credit” for the tax already paid. This prevents double taxation — you pay tax on the dividend, but get a credit for what the company already paid.
Company earns $100, pays $30 tax (30%), has $70 to distribute
Shareholder receives: $70 cash dividend + $30 franking credit = $100 grossed-up dividend
If your marginal rate is 32.5%: you owe $32.50 tax − $30 franking credit = $2.50 net tax payable
If your marginal rate is 19%: you owe $19 tax − $30 franking credit = $11 refund
Fully Franked vs Partially Franked
- Fully franked — the company paid full 30% tax on the profits distributed. Maximum franking credits attached
- Partially franked — some profits were untaxed (e.g. from overseas). Fewer credits attached
- Unfranked — no tax was paid at company level. No credits — dividend taxed at your full marginal rate
Who Benefits Most from Franking Credits?
| Investor situation | Benefit |
|---|---|
| Retirees with low income | Full refund of franking credits |
| SMSF in pension phase | Full refund — tax-free income + credits |
| Low-income earners | Partial refund if rate below 30% |
| Mid-income earners (30%) | Credits cancel out tax — effectively 0% on dividend |
| High-income earners (45%) | Net additional tax still payable (15%) |
The 45-Day Holding Rule
To claim franking credits, you must hold the shares “at risk” for at least 45 days (90 days for preference shares) around the ex-dividend date. This rule prevents investors from buying shares just before the dividend and selling immediately after solely to harvest credits. Day traders and short-term investors may not be entitled to claim franking credits.
How to Claim Franking Credits
Franking credits are claimed in your annual tax return. Your broker and the company will send a dividend statement showing the cash dividend amount and the attached franking credits. Both the dividend and the grossed-up credits are included as assessable income, and the credits offset your tax liability (or generate a refund).
Calculate Your Take-Home Pay After Tax
See how your total income including dividends affects your tax bill.
Disclaimer: General information only. Not financial advice. Always consult a licensed professional before making financial decisions.