We've helped businesses save $55m with our all-in-one platform. Get instant access to this template and 115+ others, plus AI-powered document creation, starting completely free.
Understanding franking dividends can make a real difference to your tax outcome. Whether you run a business or invest in shares, knowing how these credits work helps you keep more of your money. Franking dividends pass on company tax already paid to you, reducing your own tax bill or giving you a refund.
Franking dividends are payments from a company to its shareholders that include a franking credit. This credit shows that the company has already paid tax on its profits. Shareholders can use these credits to lower their own tax or claim a refund. Franking dividends help reduce double taxation and improve tax outcomes.[ez-toc]
Franking dividends are a key feature of Australia’s tax system. They help avoid double taxation on company profits. If you're a business owner or investor, it's important to understand how they work. Franking dividends affect how much tax you pay on investment income and how much you get back at tax time.
A franking dividend is a dividend that comes with a franking credit. That franking credit shows the company has already paid tax on its profit before giving out the dividend. This credit helps reduce the tax the shareholder must pay on their dividend income.
For example, if a company earns profit and pays the corporate tax rate of 30, it can distribute franking credits to its shareholders when it pays dividends. The dividend carries a franking credit, which the shareholder can use to lower their income tax or get a refund.
This system is called dividend imputation. It means the tax paid by the company is passed on to the individual. The aim is to stop the same income being taxed twice – once at the company level and again at the individual level. This helps avoid double taxation.
If you’re a business owner paying yourself through dividends, franking credits can help cut your personal tax bill. If you're an investor, they can boost your return. In some cases, you may even get a refund of franking credits if your marginal tax rate is low.
In this guide, you’ll learn:
This knowledge helps you stay compliant with the Australian tax rules and make smarter financial choices.
If a business makes a profit, it can choose to keep it or pay some of it to its owners. When a business chooses to pay out profits to owners or investors, this payment is called a dividend. In Australia, dividends are taxed depending on whether the company has already paid tax on those profits.
There are two types of dividends: franked dividends and unfranked dividends. The difference depends on whether a franking credit is attached to the dividend.
A franked dividend includes a franking credit, which means the company has already paid tax on the profit. This reduces the amount of tax the investor needs to pay on the dividend income.
An unfranked dividend has no franking credit. The shareholder must pay the full income tax amount on the dividend they receive. The type of dividend you get affects your taxable income and how much tax you might owe or claim back on your tax return.
Here’s a simple look at how tax works at each level:
Type of DividendCompany Tax PaidFranking Credit AttachedShareholder TaxCan Claim RefundFranked DividendYesYesLess or noneYes, if eligibleUnfranked DividendNoNoFull tax owedNo
A franking credit is a tax credit linked to company profits. When a company pays tax on its profits, it can attach franking credits to any dividends paid to shareholders. This helps prevent double taxation, where both the company and the shareholder pay tax on the same income.
When a company earns profit, it pays tax at the corporate tax rate, usually 30%. If the company then distributes a dividend, it can include a franking credit to show that tax has already been paid. The shareholder can then use the franking credits to reduce their income tax.
This system is called dividend imputation. It means the income tax has already been paid once, by the company. The franking credit acts as a tax offset for the person receiving the dividend.
Let’s say a company earns $1,000 in profit. It pays $300 in company tax, keeping $700. The company then decides to distribute this $700 as a fully franked dividend.
The shareholder declares $1,000 as dividend income in their tax return, even though they only received $700. They also claim the $300 franking credit as a tax credit.
A franking statement shows:
This document helps the Australian resident shareholder report everything correctly and, in some cases, get a refund of franking credits. It also ensures that the credits attached to the dividends match the amount of tax paid by the company.
A franked dividend tells the shareholder that the company has already paid tax on part or all of the profit behind the payment. You can find this information in the dividend statement that comes from the Australian company issuing the dividend.
This statement helps both individuals and businesses know how much franking credit is included. It also shows how much tax you may need to pay or claim back in your tax return.
When you receive a dividend, the attached statement will tell you:
The statement must meet ATO rules. If you're a business owner, you must issue statements that include correct franking details when you distribute dividends to your shareholders.
Franked dividends come in different forms. Each has different tax outcomes:
For every distribution, keep:
This makes your tax reporting easier. It also helps if you're audited by the ATO or need to check your taxable income later.
Franking credits offer a major tax benefit to investors and business owners. They stop double taxation by giving credit for the tax already paid by the company. This reduces the amount of extra income tax the shareholder needs to pay on their dividend income.
When a company earns profit, it pays tax at the corporate tax rate, often 30%. If the company distributes that profit as a dividend, it can include a franking credit. The shareholder then includes both the dividend and the franking credit in their tax return. They can use the credit to offset income tax or claim a refund if their marginal tax rate is below the company tax rate.
Without franking, the dividend is taxed again in full by the shareholder, creating double taxation. With franking, the tax system stays fairer.
ScenarioCash DividendFranking CreditTaxable AmountTax OutcomeWith franking credit$700$300$1,000Tax already paid; may get refundWithout franking credit$700$0$700Full income tax paid on entire $700
Australia uses the dividend imputation system to stop the same profit from being taxed twice. This system links the tax a company pays with the dividends paid to shareholders. It keeps the tax system fair for both companies and individuals.
The imputation system lets companies pass on the income tax they’ve already paid to their shareholders. This is done through franking credits. When a company issues a dividend, it can include a franking credit attached. This credit shows how much tax the company has already paid on that profit.
The shareholder then includes both the dividend and the franking credit in their tax return. They can use the credit to lower their own taxable income, claim a tax offset, or receive a refund if their marginal tax rate is below the corporate tax rate.
Here is the typical flow under the imputation system:
Company earns profit âžť Company pays tax âžť Company pays dividend âžť Franking credit attached âžť Shareholder receives dividend âžť Shareholder claims credit in tax return
This timeline shows how tax paid at the company level flows through to the individual.
The imputation system supports:
Since Australia introduced this system, it has helped keep more profits in Australia and reduced unfair tax burdens on dividends received. For business owners and investors, this means clearer rules and more control over their investment income.
Yes, you can get a refund from franking credits if your total tax owed is less than the franking credits you received. This is common for Australian residents with lower income tax levels, such as retirees, part-time workers or investors using self-managed super funds (SMSFs).
You may be eligible if:
This applies whether you earn other income or not. If your income tax rate is 0% or low, the franking credits may result in a refundable franking credit.
You can claim the franking credit refund in your annual tax return through the ATO.
Use these steps:
If you use tax software or an agent, they will guide you through the same process.
When you receive a fully franked dividend, your statement shows more than just the cash dividend. It also includes a franking credit that the company has already paid on your behalf. Knowing how to read this helps you report your dividend income correctly and get the full tax benefit.
A typical dividend statement from an Australian company includes:
These details help you work out the total value of the dividend for tax purposes. You report both the cash dividend and the franking credit in your tax return.
Let’s say you receive a dividend of $700 from a company. It comes with a franking credit of $300, which means the company paid tax at a rate of 30 on the profit.
You will declare:
This full amount ($1,000) is added to your taxable income. But you also get a tax offset of $300, thanks to the franking credit. If your marginal tax rate is below 30%, you may receive a refund of franking credits.
When you complete your tax return, make sure you:
If you miss the franking credit or get the numbers wrong, you could overpay tax or lose out on a refund.
Not all dividends come with full tax credits. A partially franked dividend means the company has paid some tax on the profits but not all. These dividends have some franking credits attached, but not enough to cover the full amount of the dividend.
A company might issue partially franked dividends when its franking account doesn’t have enough credits to fully frank the entire dividend. This could happen if:
The company may still want to reward investors, so it issues a partly franked payment instead of holding back a distribution.
Dividend TypeFranking Credit AttachedTaxable AmountShareholder Tax ImpactFully frankedFull credit (100%)Full gross-upLowers tax owed or gives refundPartially frankedPartial credit (e.g. 50%)Full gross-upSome tax offset, but may still owe taxUnfrankedNo credit (0%)No gross-upFull tax paid on the cash amount
A partially franked dividend adds more to your taxable income than an unfranked one because of the gross-up. But you also get some credit to reduce your income tax or claim a refund.
If your business pays dividends to shareholders, make sure:
Clear records and accurate statements are vital when issuing dividends to shareholders. Every time a company pays a distribution, it must provide a correct and complete dividend statement. This helps the shareholder understand how much dividend income they received and what franking credits are attached.
A proper statement also protects the business. It ensures ATO compliance and reduces errors at tax time.
The ATO requires certain details on all dividend statements. Missing these could lead to penalties or incorrect reporting.
Your statement must include:
These details let the shareholder include the correct amounts in their tax return, apply any tax credit, and calculate whether they owe tax or are due a refund.
You must report franking credits when you lodge your tax return. Whether you’re a business owner, investor or retiree, the process is simple if your records are clear. You need to report both the dividend income and any franking credit attached. This ensures you receive the right tax offset or refund.
You can report franking credits:
Follow these steps if you lodge through MyGov:
Keep copies of all dividends and franking credits. You may need them if the ATO asks for proof.
Dividend income is money you receive when a company shares profits with you as a shareholder. The tax on the dividend depends on whether it includes franking credits. If the dividend is franked, the tax paid by the company is passed on to you as a credit. You must still report the whole amount of the dividend, including the franking credit, in your tax return.
Dividend imputation is a system that links the tax a company pays with the tax you owe as a shareholder. This stops the same profit being taxed twice. When a company pays dividends to their shareholders, it can attach franking credits. These credits reduce the personal tax owed or lead to a refund. Since introducing franking in Australia, investors have had fairer tax outcomes.
If your franking credits are more than your tax owed, you may be able to get a refund. These are called excess imputation credits. They apply when your tax rate is below the company’s rate. The ATO refunds the difference, even if your other income is low.
No. Only franked dividends come with credits. Franking credits can be used only when the company has paid tax on its profits and passes that on through the dividend. The company decides whether to attach franking credits to dividends based on its tax situation and franking account balance.
Investors can receive franking credits whether they are individuals, trusts or super funds. People with lower income or those in retirement often benefit more. That’s because they can get a refund if they don’t owe much tax. Franking credits meant to reduce tax are useful to anyone receiving dividends. An imputation credit makes sure the tax paid by the company is not lost at the shareholder level.
Franking credits help business owners and investors cut tax and avoid double taxation. When managed well, they can lower your income tax or give you a refund.
To get the full benefit, you need to:
Business Kitz simplifies this for you. The platform helps you:
Whether you’re paying or receiving dividends, Business Kitz saves you time and reduces errors.
Streamline dividend management and tax compliance with Business Kitz – try it today.
Copyright © 2025 Business Kitz 14312161