Franking Credits Explained
How franking credits work: the company's 30% tax comes attached to your dividend as a credit, and the ATO refunds any excess.
Your dividend statement has a line called "franking credit" — a dollar figure you never actually received. That line is real money.
The company already paid tax on the profit behind your dividend, and Australia doesn't tax the same dollar twice. So the company's tax comes attached to your dividend as a credit — a prepaid tax voucher you hand to the ATO at tax time.
The double-tax problem Australia actually fixed
A company pays company tax on its profit — 30% for big companies, 25% for smaller ones (companies turning over less than $50 million, mostly) — then pays what's left to shareholders as dividends. In many countries you'd pay income tax on that dividend too: the same profit taxed twice.
Australia's fix is dividend imputation — the company's tax gets imputed, meaning credited, to you. A "fully franked" dividend means the company paid full tax on it, and here's the receipt.
That receipt is the franking credit. It's not extra cash — it's proof of tax already paid on your behalf, and the ATO treats it exactly like tax you prepaid yourself.
The voucher maths: $70 in hand, $100 on paper
Say a company earns $100 of profit for your shares and pays 30% company tax. You get a $70 fully franked dividend plus a $30 franking credit. At tax time, two things happen:
- You declare the full $100 as income — the $70 you received plus the $30 credit. This is called grossing up.
- The $30 credit comes straight off your tax bill, like a voucher at the checkout.
- If your tax rate on that $100 is 30%, the voucher covers it exactly — you owe nothing more.
- If your rate is 45%, you owe $45 minus the $30 voucher — a $15 top-up.
- If your rate is 16%, you owe $16 and the ATO refunds the $14 difference.
Yes, the ATO actually gives change
Franking credits are refundable for individuals. If your credits are worth more than your total tax bill, the difference comes back as cash in your refund.
That's why franked dividends suit low-rate taxpayers — retirees, part-timers, anyone under the $18,200 tax-free threshold. Someone with no other income holding franked shares can pay zero tax and still receive the company's 30% back as a refund.
For higher earners the credit doesn't erase the tax, but it takes a serious bite. On the top 45% rate, a fully franked dividend costs you 15% more tax plus Medicare, not the full whack — the voucher covered the first 30 points.
💡Reality check
A franking credit isn't a bonus payment — it's tax the company already paid, passed to you as a credit. Whether you top up or get a refund depends on your own tax rate versus the company's.
Franked, unfranked, and the 45-day fine print
A dividend is only franked to the extent the company paid Australian tax on the profit behind it. Unfranked dividends — common from companies with overseas earnings or tax losses — carry no credit, and you pay your full marginal rate (the tax rate on your last dollar of income) on them.
There's also the holding period rule: broadly, you must hold the shares at risk for at least 45 days around the dividend to claim the credits. Buying just before a dividend and selling straight after doesn't qualify.
The good news for small investors: if your total franking credits for the year are $5,000 or less, the 45-day rule generally doesn't apply to you.
Where the vouchers show up (and what to do next)
Your dividend statements list the franked amount and the credit, and by late July most of it lands in the ATO's pre-fill — the data already sitting in your online return. Your job is mostly checking, not typing.
ETFs and managed funds pass franking credits through too — via your annual tax statement rather than per-dividend, but they work the same way at tax time.
To see what a franked dividend does to your bottom line, add the grossed-up amount to your income in our tax calculator and compare.
⚡Quick win
Never skip the franking credit box in your return. Declaring the dividend without the credit means paying tax twice on the same profit — the exact thing the system exists to prevent.
FAQ
Do I get franking credits back as cash?
You can. Franking credits are refundable for individuals — if your credits exceed your total tax bill, the ATO pays you the difference in your refund. That's why low-income earners and retirees holding franked shares often get money back.
Why do I declare more income than the dividend I received?
Grossing up: you declare the dividend plus the franking credit as income, then claim the credit against your tax. It ensures you're taxed at your own rate on the full profit — no more, no less.
Are all Australian dividends fully franked?
No. A dividend is only franked to the extent the company paid Australian company tax on the underlying profit. Companies with offshore income or tax losses often pay partly franked or unfranked dividends.
Run your own numbers
Sources: figures checked against ATO published rates and thresholds for FY2025-26 at the review date. See how we check our numbers.
⚠️ General information only — not tax or financial advice. Figures relate to FY2025-26 unless stated otherwise.