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Australian Dividend Investing: Franking Credits Explained
Australia's dividend imputation system is one of the most generous in the world for shareholders. When an Australian company pays corporate tax at 30% before distributing a dividend, shareholders can claim that tax as a credit — reducing or eliminating their personal tax on the dividend income. For low-income earners and super funds, excess franking credits are refunded in cash.
How Franking Credits Work
A $70 fully franked dividend carries a $30 franking credit (30/70 ratio), making the gross dividend $100. You include $100 in your tax return and receive a $30 credit against your tax liability. If your marginal rate is 32.5%, your tax on $100 is $32.50 minus the $30 credit = only $2.50 out of pocket. If your rate is below 30%, you receive a cash refund of the difference.
| Marginal Rate | Tax on $100 Gross Div | Franking Credit | Net Tax / (Refund) |
|---|---|---|---|
| 0% (tax-free) | $0 | $30 | ($30) refund |
| 19% | $19 | $30 | ($11) refund |
| 32.5% | $32.50 | $30 | $2.50 payable |
| 37% | $37 | $30 | $7 payable |
| 45% | $45 | $30 | $15 payable |
| 15% (super fund) | $15 | $30 | ($15) refund |
Not financial or tax advice. Consult a registered tax agent for your specific situation.