What are franking credits?
Franking credits represent company tax already paid on dividends, reducing or eliminating your personal tax on that income.
Franking credits (also called imputation credits) represent the tax a company has already paid on its profits before distributing them as dividends. When you receive a franked dividend, you get a credit for the tax already paid, so you don't get taxed twice on the same money.
If your personal tax rate is lower than the company tax rate (30%), you may even get a refund of the excess credit. This is why franking credits are especially valuable for low-income earners and retirees.
Key facts
- •Prevent double taxation on company profits distributed as dividends
- •Company tax rate is 30% (25% for small companies), so a fully franked dividend carries credits at that rate
- •You add the franking credit to the dividend for tax purposes, then claim the credit back
- •Excess credits can be refunded if your tax rate is below the company rate
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How do I claim franking credits?
They're automatically included in your tax return when you report dividend income. Your dividend statement will show the franking credit amount. Add both the dividend and the credit to your income, then claim the credit as a tax offset.
What's the difference between fully and partly franked?
A fully franked dividend has had full company tax paid on it. A partly franked dividend has only had some tax paid — you'll get a smaller credit and may owe more personal tax on the unfranked portion.
General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.