Australian-resident companies pay tax on their profits, and can attach that tax to the dividends they pay. The Australian Taxation Office (ATO) calls this the imputation system. The attached tax is a franking credit. If you are an Australian resident, you include both the dividend and the franking credit in your assessable income, and you also get a tax offset equal to the franking credit, provided you meet the integrity rules.

If the offset is larger than the tax you otherwise have to pay, the excess can be refunded. That is why a person with little other taxable income, including some retirees, can receive a cash refund of franking credits, while a person on a higher marginal rate may still have tax to pay after the offset is applied.

This explainer follows the ATO's refund-of-franking-credits page and the myTax 2026 dividend instructions. It sits with the Never Lose Interest guide to tax on shares and dividends. It is general information only, and it is not a refund estimate.

How the credit is calculated

The franking credit is shown on your dividend or distribution statement. You should use that figure, not a guess.

The official relationship is straightforward. The ATO's refund page treats a $5,000 franking credit as roughly equivalent to a fully franked dividend of $11,667 when the company tax rate is 30%, or $15,000 when the rate is 25%. That is the same relationship as:

franking credit = franked dividend × (company tax rate / (1 minus company tax rate))

At a 30% company rate, that is franked dividend × 30/70. At a 25% rate, it is franked dividend × 25/75. Some companies are base rate entities and frank at 25%. The statement tells you which figure was allocated.

Applying that official 30% relationship to a $70 fully franked dividend gives a franking credit of $30. You include $100 in assessable income, being $70 plus $30, and you receive a $30 tax offset if you are entitled to the credit. A $700 fully franked dividend would, on the same basis, carry a $300 credit and $1,000 of assessable income.

A partly franked dividend has a franked amount, an unfranked amount and a franking credit that relates only to the franked part. Include each amount as the statement shows it. If tax was withheld because the company did not have your tax file number, and the dividend is partly or fully unfranked, the ATO says you must add the tax withheld to the unfranked amount you declare, and you can claim a credit for the tax withheld.

You also need to include franking credits that come through a trust, a partnership or a managed fund or ETF distribution, where the annual tax statement allocates them to you.

What happens in your tax return

For an Australian resident, the ATO uses the dividend and the franking credit to:

  • increase your assessable income
  • reduce your tax liability, after other tax offsets
  • refund any leftover franking credits after your tax and Medicare levy liabilities are met

The credit is not a deduction, and it does not reduce the dividend itself. If your marginal rate is higher than the company rate, you may still have tax to pay on the grossed-up amount. If your tax and Medicare levy are lower than the credits, you may get a refund of the excess.

If you are not entitled to the franking tax offset, because you fail the integrity rules, the ATO says you must not include those franking credits in your tax return.

People who do not need to lodge a tax return can still apply for a refund of franking credits, online, by phone or by mail, if they meet the ATO's criteria for that form. The myTax 2026 instructions for the online form are written for the 2025-26 income year and include a residency test, a dividend-income ceiling of $18,200 (or $416 if you were under 18 on 30 June 2026), and a requirement that the statement shows Australian franking credits. New Zealand imputation credits do not qualify, although Australian franking credits attached to a New Zealand company dividend can. If you do not meet every criterion, you need to lodge a tax return to claim the credits. Confirm the current year's form before you use those income ceilings for a later year.

The integrity rules

To be a "qualified person" you must meet the holding period rule and the related payments rule. If your total franking credits entitlement for the income year is less than $5,000, you only need to meet the related payments rule.

The holding period rule applies to shares bought on or after 1 July 1997, once your total franking credits for the year are $5,000 or more. You must hold the shares "at risk" for at least 45 days, or 90 days for preference shares. Do not count the day of acquisition or the day of disposal. You only need to satisfy the holding period rule once for each share purchase.

"At risk" matters. If you enter an arrangement that reduces the risk of making a loss on the shares, those days may not count. The myTax 2026 instructions also warn that you may not be entitled to the credits if you received a dividend as a result of a dividend washing arrangement.

If you have more than $5,000 in franking credits from a single parcel and you did not satisfy the holding period rule, you cannot claim a franking offset for those credits, and you cannot limit the claim to $5,000. You also do not include those credits in your return.

A related payment is a payment that passes the benefit of the franked dividend to someone else. If that rule applies, you cannot receive the franking offset even if you met the holding period. The related payments test is applied for each dividend or distribution, for each parcel.

These rules can be technical for people who borrow to invest, use options, or turn shares over quickly. If your credits are near or above $5,000, or you have sold shares soon after a dividend, read the ATO page or get advice rather than assuming the small-credits concession covers you.

Records to keep

Keep dividend and distribution statements. They should show the franked amount, the unfranked amount, the franking credit, the date of payment and any tax withheld. Managed fund and ETF annual tax statements often split the same items across several labels. Use the statement, not a broker payment total, when you lodge.

Frequently asked questions

Can a super fund get franking credits too?

Yes, in many cases. The ATO says Australian-resident members, including individuals and superannuation funds, are generally eligible for a refund if franking credits exceed their tax liability. The fund, not you personally, claims credits on dividends it receives. That is separate from any credits on shares you hold outside super.

Do unfranked dividends have a credit?

No. An unfranked dividend is still assessable, but there is no franking credit attached. TFN withholding can still apply if the payer does not have your tax file number.

Is a franking credit refund the same as a tax refund?

It can form part of the refund you see after you lodge, or it can be paid through the separate franking-credit refund process if you do not need to lodge. The timing still follows the ATO's usual refund processes. See how long a tax refund takes, and use the ATO's refund-tracking pages or myGov to see the status of a return or a franking-credit refund application.

General information warning

This article is general information only. It is not personal financial product advice or tax advice, and it is not a recommendation to buy shares for franking credits. It does not take into account your objectives, financial situation or needs. Entitlement depends on residency, the integrity rules and the figures on your statements. Consider speaking with a registered tax agent, and confirm the current ATO instructions, before you lodge or apply for a refund.

Sources

Last reviewed: November 2026.