Franking Credit
Calculator Australia

How Franking Credits Work in Australia

Australia's dividend imputation system prevents corporate profits from being taxed twice — once at the company level and again at the shareholder level. When an Australian company pays tax on its profits at the corporate rate (30% or 25%), it attaches franking credits to the dividend it pays shareholders. These credits represent the tax already paid.

When you lodge your tax return, the grossed-up dividend (cash dividend plus franking credits) is included in your taxable income. The franking credits offset your tax liability — and if your marginal rate is lower than the corporate rate, you receive a cash refund from the ATO for the excess.

Who benefits most from franking credits?

Low-income earners and retirees benefit most from franking credits because their marginal tax rate is well below the corporate tax rate. A retiree drawing from an SMSF in pension phase pays zero tax — meaning all franking credits are received as a cash refund. This is why Australian blue-chip shares paying fully franked dividends are particularly prized in SMSF portfolios.

What is a fully franked dividend?

A fully franked dividend means the company has paid the maximum possible corporate tax on the profit being distributed. The franking credit attached equals the tax paid — using the formula: Franking Credit = (Dividend ÷ (1 − Tax Rate)) × Tax Rate. For a $700 dividend from a company paying 30% tax, the franking credit is $300, giving a grossed-up dividend of $1,000.