Franking Credits Calculator

In most countries, company profits are taxed once at the corporate level and again when paid out as dividends. Australia removes that double taxation through dividend imputation.

When an Australian company pays tax on its profit, that tax is credited to shareholders when the profit is distributed. A dividend arrives with a franking credit attached representing the tax already paid. The shareholder declares the *grossed-up* amount — cash dividend plus credit, which reconstructs the original pre-tax profit — as income, then offsets the credit against their own tax bill.

The arithmetic is straightforward. At the 30% company rate, $70 of dividend came from $100 of pre-tax profit on which $30 of tax was paid, so the credit is 30/70 of the dividend, or three sevenths. At the 25% base rate the credit is 25/75, or one third.

Many countries offer some form of dividend credit. What makes Australia unusual is that the credit is *refundable* for individuals and superannuation funds — if it exceeds your tax liability, the ATO pays the difference in cash.

The consequence is that the effect depends entirely on the shareholder's marginal rate relative to the company rate. Someone on the top rate of 45% plus the levy pays a top-up on the difference. Someone at 30% breaks even and the dividend is effectively tax-free in their hands. Someone on a low income, or a superannuation fund in pension phase paying no tax at all, receives the whole credit back as cash.

That last case is why franking credits have been so politically contentious. A retiree with a large share portfolio and little taxable income can receive substantial annual payments from the ATO, and a proposal to end those refunds was a defining issue of the 2019 federal election.

Not every dividend is fully franked. A company can only frank to the extent it has paid Australian company tax, so businesses with significant foreign earnings, recent losses, or heavy use of tax concessions often frank only partly or not at all.

The dividend statement shows the franking percentage. Only that portion carries a credit; the unfranked remainder is taxed in full at the shareholder's marginal rate with nothing to offset it. Comparing two shares on dividend yield alone is therefore misleading — a 5% fully franked yield is worth considerably more after tax than a 6% unfranked one to most investors.

One rule catches active traders: the shares generally must be held at risk for at least 45 days around the ex-dividend date to claim credits above a small threshold. Buying just before the ex-date to capture the franking and selling immediately after does not work.