A franking credit refund occurs when the franking (imputation) credits attached to your Australian share dividends exceed your total income tax liability. The ATO refunds the excess credits in cash. This is one of the most valuable tax outcomes available to low-income Australian investors and retirees.
Who Gets a Franking Credit Refund?
You receive a franking credit refund when:
Franking Credits > Your Tax Liability
This happens when your effective tax rate is lower than the corporate tax rate (generally 30%) attached to the dividends you receive.
Investors most likely to receive refunds:
- Retirees with modest investment income (well below the 30% tax threshold)
- FIRE retirees with low annual drawdowns
- Superannuation funds in pension phase (0% tax — all franking credits are refunded)
- Students or low-income earners with share investments
- Trusts or companies with carried-forward losses
How the Franking Credit Refund Flows Through Your Tax Return
- Receive a cash dividend (e.g., $700) with franking credits ($300) — 100% franked
- Include the grossed-up dividend ($1,000) as assessable income in your tax return
- The ATO calculates your income tax on your total taxable income (including the grossed-up dividend)
- Your total tax liability is calculated (e.g., $0 — because total income is below the tax-free threshold)
- The $300 franking credit is applied against your $0 tax → $300 excess
- The ATO refunds $300 to your bank account with your tax assessment
Worked Example — Retired Investor
Profile: Single retiree, age 68, $35,000/year in fully franked Australian share dividends (no other income)
| Item | Amount |
|---|---|
| Cash dividends received | $35,000 |
| Franking credits (30% corporate tax, 100% franked) | $15,000 |
| Grossed-up dividend (assessable income) | $50,000 |
| Tax on $50,000 (incl. LITO, SAPTO) | ~$2,600 |
| Less franking credits | −$15,000 |
| Franking credit refund | ~$12,400 |
SAPTO — Senior Australians and Pensioners Tax Offset — further reduces tax for eligible seniors.
The investor receives $35,000 in cash dividends plus a ~$12,400 tax refund = ~$47,400 effective annual income from a $35,000 cash dividend.
Superannuation Pension Phase — Full Refund
Super funds in pension phase pay 0% tax on investment earnings. All franking credits attached to Australian share dividends are refunded in full to the fund:
- ASX portfolio earning $50,000 in dividends, 80% franked
- Franking credits: ~$17,000
- Tax liability: $0 (pension phase)
- Full $17,000 refunded to the super fund
This significantly boosts net returns from Australian equities inside super.
Superannuation Accumulation Phase
Super funds in accumulation pay 15% tax on earnings. Franking credits still generate refunds — but at a lower rate:
- Company pays 30% tax on profits → attaches 30% franking credit
- Super fund pays 15% tax → net credit remaining = 15% → 15% refunded
Still a meaningful boost to after-tax returns, but less than pension phase.
How to Include Franking Credits in Your Tax Return
Via myTax (ATO online): Most franking credit information is pre-filled via Single Touch Payroll and ASX data. Check that your dividend statements match what’s pre-filled.
Manually (paper or tax agent):
- Locate your dividend statement(s) from your broker, share registry, or company
- Each statement shows: cash dividend, franking credit, grossed-up amount
- Enter the grossed-up dividend in the “Dividends” section of your tax return
- The ATO automatically calculates the franking credit offset
Via your super fund: The super fund handles this — members don’t file separate returns for super tax; the fund’s tax return captures all franking credit offsets.
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- Franking Credits Australia
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Frequently Asked Questions
How much can I get back from franking credits in Australia? It depends on your investment portfolio size and tax situation. A retiree with $500,000 in 100% franked Australian shares earning approximately $20,000 in cash dividends (4% yield) might receive $5,000–$8,000 in franking credit refunds annually. In super pension phase, the refund is the full franking credit amount attached to all dividends.
When does the ATO pay a franking credit refund? After you lodge your tax return, the ATO processes it (typically 2 weeks for myTax returns) and deposits any refund — including franking credit refunds — to your nominated bank account. Most Australian taxpayers lodge by 31 October each year for the previous financial year.
Can a company get a franking credit refund? Companies can use franking credits from their own dividends received to offset their income tax — but they cannot receive cash refunds as individuals can. Only individuals, superannuation funds, and certain trusts/charities can receive excess franking credit refunds.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.