Franking credits (also called imputation credits) are one of the most valuable tax benefits available to Australian investors. Understanding them can significantly boost your after-tax investment returns.
What Are Franking Credits?
When an Australian company pays tax on its profits and then distributes dividends to shareholders, the tax already paid by the company is credited to the shareholder. This prevents the same income from being taxed twice — once at the company level and again at the individual level.
- Company earns $100 profit, pays 30% corporate tax ($30), has $70 left
- Pays you $70 fully franked dividend
- You also receive $30 franking credit (the tax the company already paid)
- Your taxable income includes $100 (the gross dividend)
- Tax on $100 at your marginal rate, minus the $30 credit already paid
- If your tax rate is 32.5%, you pay $32.50 – $30 = $2.50 net tax
- If your tax rate is under 30%, you get a refund of the difference
Who Benefits Most from Franking Credits?
| Tax Situation | Benefit |
|---|---|
| Retirees (no income / low income) | Full refund of franking credits |
| Investors in super (accumulation) | Refund of credits above 15% tax rate |
| Middle-income earners (32.5%) | Offset most of the tax on dividends |
| High-income earners (45%) | Offset 30% of the 45% owed — still pay the difference |
How to Claim Franking Credits
You claim franking credits through your annual tax return. Your broker or registry will send you a dividend statement showing the cash dividend and the franking credit attached. Include both in your tax return as income, and the ATO applies the credit against your tax liability (and refunds any excess).
Fully Franked vs Partially Franked
A “fully franked” dividend means the company paid full corporate tax (30%) on those profits. “Partially franked” means only some of the profits were taxed at the corporate level. Some dividends (from foreign operations) are “unfranked” — no credit attached.
Calculate Your Tax on Dividends
Use our income tax calculator to see your effective rate on investment income.
Disclaimer: General information only. Not financial advice. Always consult a licensed professional before making financial decisions.