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Investors & dividendsFranking credits, explained
The tax the company already paid on your dividend, and how to get it back. What fully franked, partly franked and the 45-day rule actually mean for your return.
What "franked" actually means
When an Australian company pays tax on its profit and then pays you a dividend out of that profit, the tax already paid travels with the dividend. That attachment is the franking credit — also called an imputation credit.
Fully franked means the company has paid the full company rate on that dividend and attached the whole credit. Partly franked means only a percentage of it is attached — the franking percentage printed on your statement — usually because the company's franking account did not hold enough credit.
You declare the cash dividend plus the franking credit as income, then claim the credit as tax already paid. If your marginal rate is lower than the company rate, the difference comes back to you as a refund. If it is higher, the credit reduces what you owe.
The dividend statement from your share registry or broker has the figures you need: the unfranked amount, the franked amount, the franking credit and the franking percentage. The ATO also pre-fills most listed dividends.
A fully franked dividend, worked through
Company paying tax at 30%, you on a 19% marginal rate.
- Cash dividend received
- $700
- Franking credit ($700 × 30 ÷ 70)
- $300
- Taxable dividend income
- $1,000
- Tax at 19%
- $190
- Less franking credit
- −$300
- Refund from the ATO
- $110
Simplified: Medicare levy, the low income tax offset and your other income are ignored here. The point is that the credit is real money, not a discount.
Six rules that decide whether you keep the credit
The 45-day holding rule
To claim the credit you must hold the shares at risk for at least 45 days (90 days for preference shares). The day you buy and the day you sell don't count.
Small shareholder exemption
If your total franking credits for the year are $5,000 or less, the holding rule doesn't apply to you. It is tested on credits, not on the size of your portfolio.
Refundable for individuals
Excess credits are refunded in cash to individuals and complying super funds. Companies can only carry them forward, so a company never gets a cash refund for them.
Nothing for non-residents
Franking credits can't be used or refunded against non-resident tax. The franked part of the dividend is generally exempt from dividend withholding tax instead.
Trusts pass them through
A trust distributes both the dividend and the attached credit to beneficiaries. The credit keeps its character and is claimed by whoever is assessed on the income.
The franking account decides
A dividend can never carry more credit than the company's franking account holds, or more than the maximum rate allows — which is why the same share can be fully franked one year and partly franked the next.
The numbers behind it
Rates and limits that decide the size of the credit on your dividend statement.
| What | Rate or limit | Notes |
|---|---|---|
| Base rate entity company tax rate | 25% | Turnover under $50m and no more than 20% passive income |
| Standard company tax rate | 30% | Every other company |
| Franking credit formula | Dividend × rate ÷ (1 − rate) | At 30% that is dividend × 30 ÷ 70; at 25% it is × 25 ÷ 75 |
| Maximum franking credit | Dividend × max rate ÷ (1 − max rate) | A company cannot attach more credit than this |
| Holding period for the offset | 45 days | 90 days for preference shares; buy and sell dates excluded |
| Small shareholder exemption | $5,000 of credits | Total franking credits for the year, tested per taxpayer |
| Excess credits refunded | Yes | For individuals and complying super funds, including SMSFs |
| Records to keep | 5 years | Dividend statements, buy and sell contracts, DRP notices |
Partly franked is not a mistake. A dividend showing 60% on the statement carries 60% of the maximum credit. You still claim what is there — just don't expect the statement to match the 30 ÷ 70 shortcut.
Franking credits, answered
Holding Australian shares?
Send us your dividend and annual tax statements with your other income and we will reconcile every franking credit against the ATO pre-fill before lodging — so the refund is right the first time.