Franking credits
A credit for company tax already paid on your dividends.
When an Australian company pays you a dividend from profits it has already paid tax on, it can attach a franking credit for that tax. You include both the dividend and the credit in your income, then the credit reduces your tax bill — so the profit isn’t taxed twice. Extra credits can be refunded.
Australia’s company tax rate is 30%, or 25% for base-rate entities, and that is the tax the credit represents. A dividend is “fully franked” when the company paid tax on all of the profit behind it, and partly franked when it paid on some — the franking percentage on your dividend statement tells you which.
Worked example
You receive a $700 fully franked dividend from a company taxed at 30%. It carries a $300 franking credit, so you declare $1,000 of income and get $300 off your tax. On a 30% marginal rate the $300 of income tax on it is exactly cancelled by the credit; on a 15% rate the $150 owed leaves $150 of credit spare, which is refundable. These figures are income tax only — the Medicare levy and anything else on your assessment sit on top — and they assume you are entitled to claim the credit.
Common mistake
Declaring only the cash that landed in your account. The credit is part of your income as well as a credit against your tax — leaving it out understates your income and quietly throws away the refund it was meant to give you.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
CGT discount (50%)
Hold an asset over 12 months and only half the gain is taxed.
Marginal tax rate
The tax rate on your next dollar of income.
Tax-free threshold
The first $18,200 of income you can earn tax-free.
Medicare levy
A 2% levy on most taxable income that funds public health.
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Questions about this term
Franking credits: common questions
- Do I declare the franking credit as income, or only the cash dividend?
- Both — you include the dividend and the credit in your income, then the credit reduces your tax bill. A $700 fully franked dividend from a company taxed at 30% carries a $300 credit, so you declare $1,000 and get $300 off your tax. Declaring only the cash understates your income and throws away the refund the credit was meant to give you.
- Can franking credits give me a refund?
- Yes — extra credits can be refunded. On a 15% marginal rate, the $1,000 of grossed-up income owes $150 of income tax, so $150 of the $300 credit is left over and refundable. On a 30% rate the credit exactly cancels the tax. These figures are income tax only; the Medicare levy sits on top, and they assume you are entitled to claim the credit.
- What does “fully franked” mean on a dividend statement?
- It means the company paid tax on all of the profit behind the dividend. A partly franked dividend had tax paid on some of it, and the franking percentage on your statement tells you which. The tax the credit represents is Australia’s company rate — 30%, or 25% for base-rate entities — which the company tax calculator on this site shows at work.
- Why isn’t the same profit taxed twice when it reaches me?
- Because the credit hands back the company tax already paid. The company pays tax on its profit, attaches a credit for that tax to your dividend, and you use the credit against your own bill. Without it, the profit would be taxed once in the company and again in your hands.
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