Franking Credits on ASX Shares — How Dividend Imputation Works for Investors
This article provides general information only and does not constitute financial advice. For advice tailored to your situation, consult a licensed financial adviser. Learn more.
Contents
Franking credits (also called imputation credits) are tax credits attached to dividends paid by Australian companies. They prevent shareholders from being taxed twice on the same company profits — once at the corporate level and again when the dividend is received. Australia’s franking system is one of the most generous in the world and is a key reason dividend investing on the ASX is particularly attractive.
Why Franking Credits Exist
When an Australian company earns profit and pays corporate tax (30%), it has already paid tax on behalf of its shareholders. Without franking credits, shareholders would then pay income tax again on the dividend — effectively taxing the same money twice. Franking credits give shareholders credit for the company tax already paid, reducing the shareholder’s personal tax obligation.
How Franking Credits Work
When a company pays a dividend, it can attach franking credits if it has paid Australian company tax on the underlying profits.
- Fully franked — 100% of the dividend carries franking credits (company paid 30% tax on all profits distributed)
- Partially franked — some portion carries credits
- Unfranked — no credits attached (company has not paid Australian tax on these profits)
Franking credit formula:
$$\text{Franking credit} = \text{Cash dividend} \times \frac{\text{Corporate tax rate}}{1 - \text{Corporate tax rate}}$$
At 30% corporate tax rate:
$$\text{Franking credit} = \text{Cash dividend} \times \frac{0.30}{0.70} = \text{Cash dividend} \times 0.4286$$
Franking Credit Example
You receive a $700 fully franked dividend from CBA.
| Item | Amount |
|---|---|
| Cash dividend received | $700.00 |
| Franking credit attached | $300.00 |
| Grossed-up dividend (your assessable income) | $1,000.00 |
Your income tax calculation:
| Tax scenario | Tax on $1,000 | Less franking credit | Net tax payable |
|---|---|---|---|
| 0% tax rate (tax-free threshold) | $0 | -$300 | $300 refund |
| 19% rate | $190 | -$300 | $110 refund |
| 32.5% rate | $325 | -$300 | $25 payable |
| 37% rate | $370 | -$300 | $70 payable |
| 47% rate (incl. 2% Medicare) | $470 | -$300 | $170 payable |
The higher your marginal tax rate, the less valuable franking credits are. For individuals on lower incomes (or super funds in pension phase at 0% tax), franking credits generate cash refunds from the ATO.
Franking Credits in Your Tax Return
Franking credits are reported in your tax return via your annual dividend statement or DRP statement. Your broker and the company’s share registry will issue statements with the gross dividend amount and the franking credit amount. The ATO pre-fills these into myTax for most investors.
You include the grossed-up dividend (cash + franking credit) as income, then apply the franking credit as an offset against your tax bill.
Franking Credits in Superannuation
Super funds are among the biggest beneficiaries of franking credits:
| Super fund phase | Tax rate on income | Franking credit outcome |
|---|---|---|
| Accumulation phase | 15% | Credits reduce tax (excess usually refunded) |
| Pension/retirement phase | 0% | Full refund of all credits |
A self-managed super fund (SMSF) in pension phase receives a full cash refund of all franking credits — a significant benefit for retirees.
Companies Paying Fully Franked Dividends
Most large Australian banks and consumer companies pay fully franked dividends:
| Company | ASX code | Franking status |
|---|---|---|
| Commonwealth Bank | CBA | Fully franked |
| National Australia Bank | NAB | Fully franked |
| Westpac | WBC | Fully franked |
| ANZ | ANZ | Fully franked |
| Wesfarmers | WES | Fully franked |
| Woolworths | WOW | Fully franked |
| Telstra | TLS | Fully franked |
| BHP Group | BHP | Partially/fully franked (varies) |
Companies with significant overseas income (BHP when paying special international dividends, global companies listed on the ASX) may pay partially or unfranked dividends.
Related Articles
- Franking Credits and Dividend Returns Calculator
- Dividend Investing in Australia
- Growth vs Dividend Shares
- Capital Gains Tax Australia
- ASX Shares hub
- Investing hub
Frequently Asked Questions
Do I need to include franking credits in my tax return? Yes. The ATO requires you to include the grossed-up dividend (cash dividend + franking credits) as assessable income and then claim the franking credit as a tax offset. Most brokers and company registries provide an annual tax statement showing these figures. The ATO typically pre-fills this data in myTax.
What happens if my franking credits exceed my tax bill? If your total franking credits exceed your tax liability for the year, the ATO refunds the excess to you as a cash payment. This is why lower-income investors and pension-phase super funds receive franking credit cash refunds.
Are there restrictions on claiming franking credits? You must hold shares “at risk” for at least 45 days (90 days for preference shares) around the ex-dividend date to be eligible for franking credits (the “45-day rule”). This prevents investors from buying shares just before the dividend and immediately selling — a practice known as dividend stripping. Long-term investors who hold shares for months or years are unaffected by this rule.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.