Franking Credits Calculator (Australia)

Franking credits (imputation credits) account for company tax already paid on dividends, reducing the shareholder’s personal tax on that income. For 2025-26, an individual earning $80,000 in salary who receives a $1,000 fully franked dividend from a company taxed at 30% receives a $428.57 franking credit. The effective tax rate on the dividend is approximately 2%, compared to the 32.5% marginal rate. The calculator above estimates the franking credit offset, after-tax dividend income, and refund eligibility.

What are franking credits and how do they work?

Franking credits — also known as imputation credits — are a core feature of Australia’s tax system. They exist to prevent double taxation of company profits. When a company earns a profit and pays company tax (at 25% or 30%), it can attach a “franking credit” to dividends it distributes to shareholders. The credit represents the tax already paid at the company level.

As a shareholder, you include the grossed-up dividend (cash dividend plus franking credit) in your tax return as assessable income. You then receive a tax offset equal to the franking credit. The effect is that you only pay the difference between your personal marginal tax rate and the company tax rate — not tax on top of tax.

If your marginal rate is lower than the company tax rate, the franking credit offset may exceed the tax on the dividend. For Australian resident individuals, the excess is refunded as cash by the ATO.

The franking credit formula

The maximum franking credit a company can attach to a dividend depends on the company tax rate:

At 30% company tax rate:

• Franking credit = cash dividend x 30/70 = cash dividend x 0.4286
• For every $70 in dividends, the credit is $30 (the company tax paid on the original $100 profit)

At 25% company tax rate (base rate entities):

• Franking credit = cash dividend x 25/75 = cash dividend x 0.3333
• For every $75 in dividends, the credit is $25

General formula:

• Franking credit = cash dividend x franking percentage x (company tax rate / (1 - company tax rate))

The franking percentage indicates how much of the dividend carries a credit. A “fully franked” dividend has 100% franking. A “partially franked” dividend has less than 100% — for example, a company that earned some income overseas (where Australian tax was not paid) may only partially frank its dividend.

How the tax offset works: a step-by-step example

Scenario: Lisa earns $80,000 salary and receives a $1,000 fully franked dividend from a company taxed at 30%.

1. Franking credit: $1,000 x (30/70) = $428.57
2. Grossed-up dividend: $1,000 + $428.57 = $1,428.57
3. Lisa’s total taxable income: $80,000 + $1,428.57 = $81,428.57
4. Tax on the grossed-up dividend at her marginal rate (30% + 2% Medicare): approximately $457.14
5. Less franking offset: -$428.57
6. Net tax on the dividend: $28.57
7. After-tax dividend: $1,000 - $28.57 = $971.43
8. Effective tax rate on the dividend: 2.9% (vs 32% marginal rate)

Lisa’s effective tax rate on the dividend is far lower than her marginal rate because the company has already paid 30% tax on the underlying profit. She only pays the difference attributable to Medicare levy on the grossed-up amount.

When do you get a franking credit refund?

A refund occurs when the franking credit offset exceeds the tax payable on the grossed-up dividend. This typically happens when your marginal tax rate (including Medicare levy) is lower than the company tax rate.

Scenario: Tom is retired and has $25,000 in taxable income. He receives $5,000 in fully franked dividends from a company taxed at 30%.

1. Franking credit: $5,000 x (30/70) = $2,142.86
2. Grossed-up dividend: $5,000 + $2,142.86 = $7,142.86
3. Tom’s total taxable income: $25,000 + $7,142.86 = $32,142.86
4. Tax on the grossed-up dividend at his marginal rate (~18%): approximately $1,285.71
5. Less franking offset: -$2,142.86
6. Net tax on dividend: -$857.15 (negative = refund)
7. After-tax dividend: $5,000 + $857.15 = $5,857.15

Tom receives the full $5,000 cash dividend plus an $857.15 refund from the ATO. His effective tax rate on the dividend is -17.1% — the ATO is effectively paying him to hold the shares, because the company paid more tax than Tom would have owed on that income.

Who typically receives a refund?

• Retirees and pension-phase super fund members with low taxable income
• Part-time workers or individuals with taxable income under $45,000
• Individuals in the tax-free threshold ($0-$18,200) who receive franked dividends — the entire franking credit is refunded

The 45-day holding period rule

To prevent investors from buying shares just before a dividend is paid and selling immediately after (a strategy called “dividend stripping”), the ATO requires you to hold shares at risk for at least 45 days to claim the franking credit offset. For preference shares, the holding period is 90 days.

Key points about the holding rule:

• The 45-day period excludes the day of purchase and the day of sale
• You must hold the shares “at risk” — hedging arrangements that substantially eliminate the risk of loss may disqualify the holding period
• The rule applies per parcel of shares, not per company

Small shareholder exemption

If your total franking credits for the entire income year are less than $5,000, you are exempt from the 45-day holding period rule. This is known as the small shareholder exemption.

At the 30% company tax rate, $5,000 in franking credits equates to approximately $11,667 in fully franked dividends. At the 25% rate, it equates to approximately $15,000. Most retail investors with a diversified portfolio of Australian shares will fall under this threshold.

Company tax rates: 25% vs 30%

The company tax rate determines the maximum franking credit per dollar of dividend:

A base rate entity is a company with aggregated turnover under $50 million that derives no more than 80% of its assessable income from base rate entity passive income (interest, dividends, rent, royalties, capital gains).

Most large ASX-listed companies (banks, miners, major retailers) are taxed at 30%. Smaller listed and unlisted companies may qualify for the 25% base rate. Your dividend statement will show the franking credit amount — you do not need to calculate it yourself for your tax return, but understanding the formula helps you compare investments.

Worked examples at different income levels

Example 1: High-income earner ($190,000+ salary)

$2,000 fully franked dividend at 30% company tax:

• Franking credit: $857.14
• Tax on grossed-up at ~47% (45% + 2% Medicare): $1,342.86
• Less offset: -$857.14
• Net tax: $485.72 (effective rate: 24.3%)
• After-tax dividend: $1,514.28

At the top marginal rate, you still benefit from franking credits — the effective tax rate (24.3%) is roughly half your marginal rate (47%).

Example 2: Mid-income earner ($60,000 salary)

$2,000 fully franked dividend at 30% company tax:

• Franking credit: $857.14
• Tax on grossed-up at ~32% (30% + 2% Medicare): $914.29
• Less offset: -$857.14
• Net tax: $57.15 (effective rate: 2.9%)
• After-tax dividend: $1,942.85

At the 30% bracket, the company tax rate almost perfectly matches your marginal income tax rate. You pay only the Medicare levy component.

Example 3: Low-income earner ($30,000 salary)

$2,000 fully franked dividend at 30% company tax:

• Franking credit: $857.14
• Tax on grossed-up at ~18% (16% + 2% Medicare): $514.29
• Less offset: -$857.14
• Refund: $342.85 (effective rate: -17.1%)
• After-tax dividend: $2,342.85

Below the 30% bracket, the franking offset exceeds the tax, resulting in a cash refund.

Example 4: Unfranked vs fully franked comparison

Consider the same $2,000 dividend for an investor on $80,000 salary, comparing fully franked vs unfranked:

Fully franked (30% company tax):

• Franking credit: $857.14
• Grossed-up: $2,857.14
• Tax on grossed-up: ~$914.29
• Less offset: -$857.14
• Net tax: $57.15
• After-tax: $1,942.85

Unfranked (0% franking):

• No franking credit
• Assessable income: $2,000
• Tax at marginal rate (~32%): ~$640.00
• After-tax: $1,360.00

The difference is $582.85 — a fully franked dividend delivers 43% more after-tax income than an unfranked dividend of the same amount for this investor. This is why franking credits are a significant factor when comparing Australian share investments.

Franking credits and your tax return

When you complete your tax return, franked dividends are reported at Item 11 (Dividends). Your dividend statement from the company or share registry will show three amounts:

1. Franked amount — the portion of the dividend that carries franking credits
2. Unfranked amount — the portion without franking credits (if partially franked)
3. Franking credit — the tax already paid by the company

You include the total of all three amounts (the grossed-up dividend) as assessable income. The franking credit amount is then claimed as a tax offset, which directly reduces your tax payable. If the offset exceeds your total tax liability, the ATO refunds the difference.

What assumptions does this calculator make?

• Uses 2025-26 ATO income tax brackets, Medicare levy (2% with low-income reduction), and LITO
• Calculates the marginal tax impact of the dividend on top of your other income
• Assumes you are an Australian resident individual for tax purposes
• Does not include HELP/HECS-HELP repayments or Medicare Levy Surcharge
• Does not account for other tax offsets (e.g. SAPTO for seniors)
• Does not consider franking deficit tax or the benchmark rule for companies
• The 45-day rule check is indicative only — consult a registered tax agent if your situation involves hedging or related payment arrangements