Franked and unfranked dividends differ in one thing: whether the company has already paid Australian corporate tax on the profits being distributed. A franked dividend carries a franking credit for that tax, which you use to reduce your own tax bill. An unfranked dividend carries no credit, so the cash you receive is taxed as ordinary income at your marginal rate.
That single difference can turn the same cash payment into very different after-tax income, and in some cases into a refund from the Australian Taxation Office.
The Three Labels You’ll See on a Dividend
Companies classify each distribution as franked, partially franked, or unfranked, and the label tells you how much Australian corporate tax sits behind the cash.
A fully franked dividend is paid entirely from profits taxed at the full corporate rate and carries the maximum franking credit. For a company paying tax at 30%, a $70 cash dividend arrives with a $30 franking credit attached, which represents the tax already collected on the underlying $100 of pre-tax profit.1Australian Taxation Office. Franking Account A base rate entity taxed at 25% can attach up to 25 cents of credit for every 75 cents of cash.2Australian Taxation Office. Allocating Franking Credits The company cannot attach more credit than the tax it actually paid.
A partially franked dividend is a mix. Some of the underlying profit was taxed in Australia, and some was not. The dividend statement breaks out the franked and unfranked portions, and the credit only attaches to the franked portion.
An unfranked dividend carries zero franking credits. No Australian corporate tax was paid on those profits, so there is nothing to impute to you. You receive the cash and nothing else.
Why a Company Pays One or the Other
Companies don’t always choose freely. Franking credits only exist in a company’s franking account if the company has actually paid Australian income tax or PAYG instalments. If the account balance is low or empty, the company cannot frank the distribution regardless of what shareholders might prefer.
This is why companies with large overseas operations frequently pay unfranked or partially franked dividends: foreign income doesn’t generate Australian franking credits. Companies with accumulated tax losses that have wiped out their taxable income face the same constraint. A fully franked dividend is a signal that the profits behind it were earned and taxed in Australia.
What a Franked Dividend Does to Your Tax Bill
If you’re an Australian resident, you don’t just add the cash to your income. You gross up the dividend by adding the franking credit to arrive at the full pre-tax amount, include that grossed-up figure in your assessable income, and then claim the franking credit as a tax offset that directly reduces your tax payable.3Australian Taxation Office. Franking Tax Offsets The offset applies against the tax on all your income, not only the dividend.
How that plays out depends on your marginal rate compared with the corporate rate. For the 2025–26 income year, individual rates for Australian residents are:
- $0 to $18,200: no tax
- $18,201 to $45,000: 16%
- $45,001 to $135,000: 30%
- $135,001 to $190,000: 37%
- $190,001 and above: 45%
A 2% Medicare levy applies on top.4Australian Taxation Office. Tax Rates – Australian Resident The examples below use the base rates.
When Your Marginal Rate Is Higher Than the Corporate Rate
Say your marginal rate is 45% and you receive a fully franked $70 cash dividend from a company taxed at 30%. Add the $30 franking credit for $100 of grossed-up income. Tax at 45% on $100 is $45. Subtract the $30 credit, and you owe $15. You pay only the gap between your rate and the corporate rate.
When Your Marginal Rate Matches the Corporate Rate
At a 30% marginal rate, $100 of grossed-up income produces $30 of tax. The $30 credit wipes it out. Net tax on the dividend is zero.
When Your Marginal Rate Is Lower Than the Corporate Rate
This is where the system turns generous. At a 16% marginal rate, $100 of grossed-up income produces $16 of tax. The $30 credit exceeds that liability by $14, and the ATO refunds the difference in cash.5Australian Taxation Office. Refund of Franking Credits for Individuals Retirees with low taxable income and self-managed super funds in pension phase rely heavily on this. Certain tax-exempt charities and deductible gift recipients can also claim refunds of excess franking credits if they meet residency and registration requirements.6Australian Taxation Office. Eligibility for a Refund of Franking Credits
What an Unfranked Dividend Does to Your Tax Bill
No gross-up, no offset. If $70 arrives as an unfranked dividend, you add $70 to your assessable income and pay tax on it at your marginal rate. At 30%, that’s $21 of tax on the same cash figure that produced zero tax when fully franked. Across a portfolio of dividends, that gap compounds.
Partially franked dividends work on the same split your statement shows: the franked portion gets the gross-up and offset treatment, and the unfranked portion is treated as ordinary income. Applying the credit to the whole dividend instead of just the franked portion is a common error that the ATO picks up.
The 45-Day Holding Period Rule
You can’t buy shares the day before a dividend, collect the credit, and sell. To claim the franking credit, you must hold the shares “at risk” for at least 45 days during the qualification period around the ex-dividend date. For preference shares, the period is 90 days.7Australian Taxation Office. Rules on Claiming a Franking Credit Refund “At risk” means you bear genuine economic exposure to changes in the share price. Hedging the position with derivatives that neutralise your downside can disqualify the holding.
The qualification period starts the day after you acquire the shares and ends on the 45th day after the shares go ex-dividend. Fail to accumulate 45 qualifying days inside that window, and you lose the credit entirely.
Individual shareholders get one concession. If your total franking credits from all sources for the income year are $5,000 or less, the 45-day rule does not apply to you. The threshold covers every franked dividend you receive, whether held directly or through a trust. Cross $5,000 and the exemption disappears for every dividend, not just the ones above the line. Self-managed super funds, companies, and trusts never get the exemption and must always satisfy the holding period.
If You’re Not an Australian Resident
Non-residents don’t gross up dividends or claim franking credits as offsets. Instead, Australian companies withhold dividend withholding tax before paying the distribution, and that withholding is a final tax.
Fully franked dividends paid to non-residents are exempt from withholding tax, because the corporate tax has already been paid on the underlying profits.8Australian Taxation Office. Dividends and Non-Resident Companies and Shareholders Non-residents cannot claim a refund if the credit would exceed any notional liability; the credit only zeroes out the withholding.
Unfranked dividends are withheld at a statutory rate of 30%.9Australian Taxation Office. Withholding Rate That rate is often reduced to 15% where the non-resident lives in a country with a tax treaty with Australia, and most of Australia’s more than 40 treaties cap dividend withholding at 15%. Partially franked dividends follow the same logic: the franked slice is exempt, the unfranked slice is withheld. If part of an unfranked dividend is declared as conduit foreign income, that portion is also exempt from withholding.8Australian Taxation Office. Dividends and Non-Resident Companies and Shareholders
Reading Your Dividend Statement
Australian companies must issue a dividend statement when they pay or credit a dividend. It shows the company name, payment date, total distribution, the franking credit attached, the franking percentage, the franked and unfranked split, and any conduit foreign income component.10Australian Taxation Office. Dividend or Distribution Statement If you haven’t given the company your tax file number, the statement will also show TFN withholding deducted.
Keep every statement. The franking credit figure drives your tax return, and the ATO uses pre-fill data from companies to cross-check what you report. On a partially franked dividend, apply the credit only to the franked portion shown on the statement, not the whole payment.