To work out franking credits on a dividend, multiply the franked portion of the payment by the company tax rate, then divide by one minus that rate. For a fully franked $700 dividend from a company taxed at 30%, that gives $700 × (0.30 ÷ 0.70) = $300. Your dividend statement will normally show this figure already, so the calculation matters most when you’re verifying it, estimating your position before year-end, or working out the credit on a partially franked payment where only the franking percentage is stated.
The Formula and What Goes Into It
The full formula is:
Franking credit = Franked dividend × (company tax rate ÷ (1 − company tax rate))
Two inputs drive the result. The first is the franked portion of your dividend, which your statement separates from any unfranked amount. If the statement doesn’t split the two, treat the full dividend as franked when entering it into your return.1Australian Taxation Office. myTax 2024 Applying for a Refund of Franking Credits
The second is the company tax rate that applied to the profit behind the dividend. Most companies pay 30%. A base rate entity pays 25% if its aggregated turnover is under $50 million and no more than 80% of its assessable income is passive income such as interest, rent, royalties, or distributions from other entities.2Australian Taxation Office. Changes to Company Tax Rates A dividend from a 25% company carries a smaller credit per dollar than the same dividend from a 30% company, because less tax was paid on the underlying profit.
A fully franked dividend means the company paid tax on all the profit behind it. Partially franked means only part of the payment carries a credit. Unfranked dividends carry no credit and are simply added to taxable income.
Worked Examples
Fully Franked at 30%
A $700 fully franked cash dividend from a company taxed at 30%:
$700 × (0.30 ÷ 0.70) = $300 franking credit.
The $300 represents tax the company already paid on the $1,000 of pre-tax profit that funded the payment. You declare the grossed-up $1,000 ($700 cash + $300 credit) as income, then apply the $300 as a tax offset.3Australian Taxation Office. Allocating Franking Credits
Fully Franked at 25%
A $750 fully franked cash dividend from a base rate entity taxed at 25%:
$750 × (0.25 ÷ 0.75) = $250 franking credit.
The grossed-up income is again $1,000, but the smaller credit reflects the lower rate the company paid on the profit.3Australian Taxation Office. Allocating Franking Credits
Partially Franked
Apply the formula only to the franked slice. Say you receive a $700 dividend that is 60% franked, from a 30% company.
Franked portion: $700 × 0.60 = $420.
Credit: $420 × (0.30 ÷ 0.70) = $180.
The remaining $280 is unfranked and carries no credit. Grossed-up income from the dividend is $700 + $180 = $880.
How the Credit Changes Your Tax Bill
The grossed-up figure is designed to put you in the same position as if you had earned the company’s pre-tax profit directly and paid only your own marginal rate. Whether you end up with a further tax bill or a refund depends on how your marginal rate compares with the company rate.
For 2025–26, resident individual rates are:
- $0–$18,200: nil
- $18,201–$45,000: 16 cents per dollar over $18,200
- $45,001–$135,000: $4,288 plus 30 cents per dollar over $45,000
- $135,001–$190,000: $31,288 plus 37 cents per dollar over $135,000
- $190,001 and over: $51,638 plus 45 cents per dollar over $190,000
The 2% Medicare levy sits on top.4Australian Taxation Office. Tax Rates – Australian Resident A shareholder in the 30% bracket faces an effective 32% once the levy is included. The franking credit offsets 30 cents per grossed-up dollar, but the extra 2 cents for Medicare is still owed.5Parliamentary Budget Office. Dividend Imputation and Franking Credits
Where your marginal rate including Medicare is below the company rate, the credit is larger than the tax on that income and the ATO refunds the difference in cash. Retirees with low taxable income are the common case.6Australian Taxation Office. Refunding Excess Franking Credits Someone in the 45% bracket owes additional tax on the grossed-up amount, because the credit only covers the first 30 cents (or 25 cents) of each dollar.
When You Can’t Actually Claim the Credit You Calculated
The formula tells you the credit attached to the dividend. Whether you can use it is a separate question, and a few rules can knock the offset out even when the math checks out.
The 45-Day Holding Rule
You must hold the shares “at risk” for at least 45 continuous days to claim the franking offset. For preference shares, the period is 90 days. The days you buy and sell don’t count.7Australian Taxation Office. Refund of Franking Credits for Individuals “At risk” means you haven’t hedged away the downside through options, short selling, or similar arrangements. Days on which your exposure is hedged don’t count toward the 45.8Australian Taxation Office. Rules on Claiming a Franking Credit Refund
The Small Shareholder Exemption
The holding rule only bites if your total franking credit entitlement for the income year is $5,000 or more. Below that, you can claim your credits regardless of how long you held the shares.9Australian Taxation Office. Franking Tax Offsets Most retail investors sit inside this exemption.
LIFO for Multiple Parcels
Where you hold several parcels of the same share bought at different times, the ATO applies last-in, first-out to work out which shares you sold. The most recently acquired shares are treated as disposed of first, which can catch out frequent traders in the same company.10Australian Taxation Office. Last-in First-out Method for the Holding Period Requirement The capital gains tax methods like FIFO don’t apply; this is a separate integrity rule for franking.
Non-Residents
If you’re not an Australian resident for tax purposes, the franked portion of your dividend is exempt from Australian income tax and withholding tax, but you can’t claim the credit and you can’t receive a refund of it. Franked dividends and their credits don’t go on your Australian return at all.11Australian Taxation Office. Dividends and Non-Resident Companies and Shareholders The unfranked portion is subject to withholding at a rate set by any applicable tax treaty.
Putting the Number on Your Return
Dividends go at Question 11 on your return. Enter the franked amount, unfranked amount, and franking credit as separate figures; the system calculates the offset and applies it against your total liability, including the 2% Medicare levy.12Australian Taxation Office. How to Apply for a Refund of Franking Credits If the offset exceeds your total tax after other offsets, the excess is refunded to you.6Australian Taxation Office. Refunding Excess Franking Credits
Participating in a dividend reinvestment plan doesn’t change the calculation. The ATO treats a DRP as if you received the cash and immediately bought new shares. You declare the full dividend, claim the credit, and report the grossed-up amount, even though nothing hit your bank account.13Australian Taxation Office. Dividend Reinvestment Plans
If you haven’t quoted your Tax File Number to the share registry, the company must withhold tax from the dividend at the top marginal rate. You can reclaim it by lodging a return, or through a separate ATO form if you don’t normally lodge.14Australian Taxation Office. Australian Resident Investor – Refund for TFN Amounts Deducted Quoting your TFN to every registry you deal with avoids the problem.