What is a franking credit in simple terms?

A franking credit is a tax credit attached to dividends from Australian companies. It represents the tax the company has already paid on its profits, so you don't get taxed twice on the same income.

Who benefits most from franking credits?

Low-income earners and retirees benefit the most. If your marginal tax rate is below the corporate tax rate (25% or 30%), you'll get a cash refund for the difference. People in higher tax brackets still benefit — the credits reduce their tax bill, they just won't get a refund.

Do all Australian shares pay franked dividends?

No. Only dividends from Australian companies that have paid tax in Australia come with franking credits. International shares, many REITs, and companies operating at a loss typically pay unfranked dividends.

How do I claim franking credits on my tax return?

You don't need to do anything special. When you lodge your tax return, include the dividend statements from your share registry (like Computershare or Link Market Services). The ATO will automatically calculate your franking credit offset based on the information provided.

What Are Franking Credits? A Simple Guide for Australian Investors

Short Answer

Franking credits (also called imputation credits) are a tax benefit built into dividends from Australian companies. When a company pays you a dividend, it also passes on a credit for the tax it's already paid. For many investors — especially retirees and lower-income earners — this means a bigger tax refund or a lower tax bill. It's one of the best features of investing in Australian shares, and once you understand it, you'll wonder why more people don't talk about it.

What Is Dividend Imputation?

Australia has a system called dividend imputation, and it's one of the few countries in the world that does it this way. Here's the problem it solves:

Without imputation, company profits get taxed twice — once at the company level (corporate tax), and again when the shareholder receives a dividend (personal income tax). That's not fair, right?

Dividend imputation fixes this. The company pays tax on its profits (25% for small companies, 30% for large ones), and when it distributes the remaining profit as a dividend, it attaches a franking credit to show the tax has already been paid. When you lodge your tax return, the ATO treats that credit as tax you've already paid.

A Real-World Example

Let's say you own shares in a large Australian company like BHP or CBA:

Step	Amount
Company profit (per share)	$1.00
Company pays 30% tax	-$0.30
After-tax profit available	$0.70
Dividend paid to you	$0.70
Franking credit attached	$0.30

On your tax return, the ATO sees that you received $1.00 of pre-tax income ($0.70 dividend + $0.30 franking credit) and that $0.30 of tax has already been paid. Your final tax depends on your marginal tax rate:

Your Tax Bracket	Tax on $1.00	Franking Credit	You Pay or Get Back
0% (below $18,200)	$0.00	$0.30	$0.30 refund
19% ($18,201–$45,000)	$0.19	$0.30	$0.11 refund
30% ($45,001–$135,000)	$0.30	$0.30	$0.00 (break even)
37% ($135,001–$190,000)	$0.37	$0.30	You owe $0.07
45% ($190,001+)	$0.45	$0.30	You owe $0.15

For low-income earners and retirees, franking credits are essentially free money from the ATO — cash refunds for tax you never actually paid. Even for middle-income earners, they significantly reduce the tax on your investment income.

Who Gets the Biggest Benefit?

🟢 Retirees and Low-Income Earners

If your marginal tax rate is below 30%, franking credits are a gift. A retiree with a self-managed super fund (SMSF) earning fully franked dividends can get thousands of dollars back at tax time. This is why Australian shares are so popular in SMSFs.

🟡 Middle-Income Earners (30% Bracket)

You won't get a cash refund, but you also won't pay any extra tax on your dividends. It's a wash — and that's still a great deal compared to interest from a savings account, which gets taxed at your full marginal rate.

🔴 High-Income Earners (37% & 45%)

You'll still pay some tax on dividends, but less than you would on unfranked income. A 37% bracket earner only pays the 7% gap, not 37% on the whole dividend.

Franked vs. Unfranked Dividends

Not all dividends come with franking credits. Here's the difference:

Type	What It Means	Example
Fully Franked	Company paid full Australian tax on profits	Major banks, miners, Woolworths
Partially Franked	Company paid some Australian tax	Companies with overseas earnings
Unfranked	No Australian tax paid	International shares (Apple, Tesla), some REITs

If you're chasing franking credits, stick to Australian companies that operate primarily in Australia. International ETFs (like VGS or IVV) don't pay franked dividends because the underlying companies don't pay Australian tax.

What Does This Mean for Parents?

If you're a stay-at-home parent or working part-time and your taxable income is low, franked dividends in your name can be incredibly tax-effective. You might pay zero tax on your investment income and even receive franking credit refunds from the ATO.

Many couples I work with hold the Australian share portfolio in the lower-earning spouse's name for exactly this reason. (Just be aware of the ATO's rules around who genuinely owns the investments — you can't just "assign" shares to your partner without actually transferring ownership.)

The Bottom Line

Franking credits are a bonus that makes Australian shares more attractive than they first appear. A 4% dividend yield with full franking is worth more like 5.7% once you factor in the tax benefit (if you're in the 19% bracket).

You don't need to do anything complicated to claim them — just keep your dividend statements and lodge your tax return as normal. The ATO does the maths for you.