Franking Credits: How Australia's Dividend Imputation Works
Franking credits (also called imputation credits) are tax credits attached to Australian dividends that represent company tax already paid on the profits. They stop the same income being taxed twice — once at the company level and again in your hands — and are one of the most valuable features of the Australian tax system for investors.
2 min read · Updated June 2026
When an Australian company pays tax (currently 30% for large companies) on its profits and then distributes those profits as dividends, it attaches franking credits equal to the tax already paid. A 'fully franked' dividend carries the maximum credit; an 'unfranked' dividend carries none. You declare the cash dividend plus the franking credit as income, then subtract the credit from your tax bill.
The mechanics: a $70 fully franked dividend comes with a $30 franking credit, so you declare $100 of taxable income and get a $30 credit. If your marginal rate is 30%, the credit exactly cancels the tax — you pay nothing extra. If your rate is higher (e.g. 45%), you pay the difference. If your rate is lower, the magic happens.
Because franking credits are refundable in Australia, a low-rate or zero-rate investor gets the excess back as cash. A retiree drawing a tax-free super pension with a marginal rate of 0% receives the entire $30 credit as a refund — turning a $70 dividend into $100 of effective income. This refundability is unusual globally and makes fully franked Australian shares especially powerful for retirees and SMSFs in pension phase.
For accumulators, franking credits raise the effective after-tax return of Australian shares relative to unfranked foreign dividends. This is why many Australian investors hold a domestic-equity tilt (via ETFs like VAS or A200) larger than global market weights would suggest — the franking benefit is a genuine, quantifiable edge, though over-concentrating in one market for a tax perk carries its own diversification risk.
Franking credits interact with the 45-day holding rule (you must hold the shares at risk for 45 days to claim credits above a small threshold) and have been a recurring political football — a 2019 proposal to end cash refunds was a notable election issue. Treat the current refundable regime as the rule today, while recognising tax policy can change.
Richify tracks the franked and unfranked components of your dividend income and estimates the franking credits attached — so you can see your true after-tax yield, not just the cash that lands in your account.
