Franking Credits in Australia: How They Work and How to Maximise Them (2026)
Author: Tepuy Solutions | Date: April 2026
Category: Tax, Investing, Shares
Franking credits — also called dividend imputation credits — are one of the most investor-friendly features of the Australian tax system, and one of the most misunderstood. They can reduce your tax bill, generate a cash refund, or be largely irrelevant — depending entirely on your marginal tax rate and investment structure. This article explains exactly how they work with real numbers at every income bracket.
What Is Dividend Imputation?
When an Australian company earns a profit, it pays corporate tax at 30% (or 25% for small base companies). When it then pays a dividend to shareholders, imputation prevents the same profit being taxed twice. The company attaches a franking credit to the dividend representing the corporate tax already paid. Shareholders include both the cash dividend and the franking credit in their assessable income, but then offset the credit against their own tax liability.
A dividend that has had corporate tax paid on it is called fully franked. One where no corporate tax was paid (e.g. from foreign income) is unfranked. Many Australian companies pay partially franked dividends where corporate tax was paid on only part of the profit.
How to Calculate the Grossed-Up Dividend
For a fully franked dividend from a company paying 30% corporate tax:
- Cash dividend: $70
- Franking credit: $30 (representing the 30% corporate tax paid)
- Grossed-up dividend (assessable income): $100
You declare $100 in income, then offset $30 in franking credits against your tax bill. The net tax payable depends on your marginal rate.
After-Tax Return at Every Marginal Rate
Here's what a $70 fully franked cash dividend actually costs or earns you after tax at every 2025–26 marginal rate:
| Marginal Rate (incl. Medicare) | Tax on $100 Grossed-Up | Less Franking Credit | Net Tax Payable | Net Cash Received | After-Tax Yield on $70 Dividend |
|---|---|---|---|---|---|
| 0% (under $18,200) | $0 | −$30 | −$30 (refund) | $100 | 143% of cash dividend |
| 21% (under $45k) | $21 | −$30 | −$9 (refund) | $79 | 113% |
| 34.5% ($45k–$120k) | $34.50 | −$30 | $4.50 owed | $65.50 | 94% |
| 39% ($120k–$135k) | $39 | −$30 | $9 owed | $61 | 87% |
| 47% (over $190k) | $47 | −$30 | $17 owed | $53 | 76% |
| 15% (super fund) | $15 | −$30 | −$15 (refund) | $85 | 121% |
Three critical insights from this table:
- Low-income earners and zero-tax investors receive cash refunds. If you're below the tax-free threshold, a $70 cash dividend becomes $100 in your pocket — a 43% bonus.
- Super funds are the single biggest beneficiary. At 15% fund tax, a $70 dividend generates $15 in refunded franking credits on top of the cash — making Australian shares uniquely valuable inside super.
- High earners still benefit — the credits offset against income tax — but don't receive refunds. At 47%, franking credits reduce the total tax on dividends from 47% to an effective 17% on the grossed-up amount.
Franking Credit Refunds: The Refundable Offset
Since 2000, Australia's franking credits have been fully refundable. If your total franking credits exceed your tax liability, the ATO sends you the difference as a cash payment. This is why retirees and self-managed super funds in pension phase (0% tax) extract so much value from Australian shares — a portfolio of fully franked shares paying 4% cash dividends effectively delivers a 5.7% total return before capital growth, just from the credit refund.
Which Australian Shares Pay the Most Franking?
Banks and major industrial companies tend to pay fully franked dividends — CBA, NAB, ANZ, Westpac, BHP, Telstra. Growth-oriented and tech companies that reinvest profits rather than paying dividends may pay no dividends at all, or partial franking from limited taxable income. International shares (e.g. via an S&P 500 ETF) are completely unfranked — because foreign companies pay no Australian corporate tax.
This is a meaningful structural advantage for Australian shares vs international shares in taxable accounts and especially in super. Our Offset vs Shares Calculator models franking credit refunds explicitly when you select ASX returns, versus unfranked international returns.
Maximising Franking Credits: Practical Strategies
- Hold franked Australian shares inside super — the 15% fund tax creates the largest credit refund relative to any individual tax rate.
- Retirees in pension phase: switching super to pension phase drops the fund's tax rate to 0%, converting franking credits into full cash refunds on every dividend.
- Avoid the 45-day rule: To claim a franking credit, you must hold the shares for at least 45 days around the ex-dividend date (excluding the day of purchase and sale). Short-term traders who buy for the dividend and sell immediately may be denied the credit.
- Salary sacrifice + dividend reinvestment: High earners who salary sacrifice into super reduce their marginal rate and move future dividends into the 15% tax environment, amplifying the franking benefit.
Franking Credits and the ATO
Franking credits are reported on your annual tax return via your dividend statements. Each dividend statement shows the cash dividend, the franking credit, and whether it is fully, partially, or not franked. Listed investment companies (LICs) and ETFs pass through accumulated franking credits to investors via their own distributions.
Disclaimer
This article is general information only and does not constitute financial or tax advice. Franking credit calculations depend on your specific tax position. Consult a tax accountant or financial adviser for personalised guidance.