This article provides general information only and does not constitute personal financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider whether it is appropriate for you and seek advice from a licensed financial adviser if necessary.

Franked dividends are a unique feature of the Australian tax system that can significantly reduce your tax bill or even deliver a refund. When you hold shares in Australian companies that pay franked dividends, you receive a tax credit for the company tax already paid on those profits. Understanding how imputation credits work helps you make better investment decisions and maximise your after-tax returns.

What You Will Learn

By the end of this guide, you will understand what franked dividends are, how franking credits reduce your tax liability, how to find franking information on dividend statements, and how to claim franking credits in your tax return through myTax.

Step 1: Understand What Franked Dividends Are

When an Australian company makes a profit, it pays tax at 30% (or 25% for base rate entities). When the company distributes those after-tax profits to shareholders as dividends, it attaches a franking credit (also called an imputation credit) representing the tax already paid.

A fully franked dividend means the company has paid tax on 100% of the profit distributed. A partly franked dividend means tax was paid on only a portion, and an unfranked dividend carries no franking credit.

According to foundational texts such as Principles of Finance, dividend imputation systems prevent the double taxation of corporate profits by allowing shareholders to claim credit for company tax already paid.

Step 2: Calculate Your Franking Credit

The franking credit is calculated based on the company tax rate. For a fully franked dividend from a company taxed at 30%, the formula is:

Franking credit = (dividend amount / 0.70) x 0.30

Example: You receive a $700 fully franked dividend. The franking credit is ($700 / 0.70) x 0.30 = $300. Your total assessable income from this dividend is $1,000 ($700 cash + $300 franking credit).

Your dividend statement will show both the cash dividend amount and the franking credit attached. The franking percentage tells you how much of the dividend is franked (100% for fully franked, less for partly franked).

Step 3: Apply the Franking Credit to Your Tax

The franking credit reduces your total tax liability dollar for dollar. According to the Australian Taxation Office, you include both the cash dividend and the franking credit as assessable income, then subtract the franking credit from your total tax payable (ATO, 2026).

If your marginal tax rate is higher than 30%, you pay the difference. If your marginal tax rate is lower than 30%, or you have no tax liability, you receive a refund for the excess franking credit. This makes franked dividends particularly attractive for retirees, low-income earners, and superannuation funds in pension phase.

Example: You earn $50,000 in salary and receive $700 in franked dividends with $300 in franking credits. Your assessable income is $51,000. You calculate tax on $51,000, then subtract the $300 franking credit from your tax payable.

Step 4: Locate Franking Information

Your dividend statement or annual tax statement from your share registry or broker shows the franking credit amount and franking percentage. Look for terms like “franking credit”, “imputation credit”, or “franked amount”.

Most ASX-listed companies publish their dividend franking status in announcements to the market. You can access these through the ASX company announcements page or your broker’s platform.

Read also: Capital Gains Tax in Australia: The 50% Discount and How to Use It

Dividend reinvestment plans (DRPs) also attach franking credits. You still report the cash equivalent dividend and franking credit even if you reinvest the dividend in additional shares.

Step 5: Claim Franking Credits in Your Tax Return

When you lodge your individual tax return through myTax, include the dividend income and franking credits in the “Dividends” section. You will need:

  • The name of the company or trust
  • The unfranked dividend amount
  • The franked dividend amount
  • The franking credit amount

The ATO pre-fills some dividend information if your broker or share registry reports to the ATO, but always check your own statements for accuracy. Franking credits appear on your tax assessment as a credit against your total tax payable.

Superannuation funds also claim franking credits. If you hold shares inside your super fund, the fund claims the credits at the fund level, which reduces the tax the fund pays and increases your super balance.

Common Mistakes to Avoid

Do not forget to include franking credits as assessable income. Some investors mistakenly report only the cash dividend, which understates their taxable income and can trigger ATO queries.

Do not assume all dividends are fully franked. Check the franking percentage on each dividend statement. Partly franked and unfranked dividends are common, especially from companies with offshore income or losses carried forward.

Do not overlook franking credits on small holdings. Even modest dividend amounts carry franking credits that reduce your tax bill or increase your refund.

Frequently Asked Questions

Can I lose my franking credit?
Franking credits are only available to Australian tax residents who hold shares “at risk” for at least 45 days (90 days for preference shares), excluding the purchase and sale dates. This is called the holding period rule and prevents franking credit trading. Shares held in super funds have a 45-day rule as well.

What happens if I sell shares before receiving the dividend?
The buyer receives the dividend and the franking credit if the sale occurs after the ex-dividend date. If you sell before the ex-dividend date, you do not receive the dividend or credit.

Do franking credits apply to international shares?
No. Franking credits only apply to Australian companies that pay Australian company tax. International dividends may carry foreign tax credits under Australia’s double tax agreements, but these work differently from franking credits.

What is the franking account balance?
This is an internal company record tracking tax paid and dividends franked. Shareholders do not access this directly, but it determines how much franking a company can attach to future dividends.

Take Action

Review your most recent dividend statements and locate the franking credit amounts. When you lodge your next tax return, ensure you include both the cash dividend and the franking credit in the dividends section. If you are a low-income earner or retiree, consider whether franked dividend-paying shares or managed funds suit your investment strategy, as the refundable franking credits can deliver significant after-tax income. Always verify current tax rates and rules at ato.gov.au, and consult a registered tax agent for personal tax advice.