---
type: "Learn"
title: "Franked Dividend Everything Investors Need to Know"
locale: "en"
url: "https://longbridge.com/en/learn/franked-dividend-100081.md"
parent: "https://longbridge.com/en/learn.md"
datetime: "2026-04-01T18:45:55.032Z"
locales:
  - [en](https://longbridge.com/en/learn/franked-dividend-100081.md)
  - [zh-CN](https://longbridge.com/zh-CN/learn/franked-dividend-100081.md)
  - [zh-HK](https://longbridge.com/zh-HK/learn/franked-dividend-100081.md)
---

# Franked Dividend Everything Investors Need to Know

<p>A franked dividend is an arrangement in Australia that eliminates the double taxation of dividends. The shareholder can reduce the tax paid on the dividend by an amount equal to the tax imputation credits. <span style="background-color: rgb(255,255,255); color: rgb(17,17,17)">An individual’s marginal tax rate and the tax rate for the company issuing the dividend affect how much tax an individual owes on a dividend.</span></p>

## Core Description

-   Franked dividends are Australian company payouts accompanied by franking credits, which reflect company tax already paid and help investors reduce or refund tax.
-   The actual benefit of franked dividends depends on an individual’s marginal tax rate, the amount of franking credits attached, and satisfaction of eligibility rules.
-   Understanding the calculation methods, application, and regulatory framework around franked dividends enables investors to make informed after-tax decisions for portfolio construction and yield enhancement.

* * *

## Definition and Background

A franked dividend refers to an Australian company dividend that carries franking credits, representing tax already paid at the corporate level. Under Australia’s dividend imputation system, introduced in 1987, companies that pay tax on their profits attach franking credits to the cash dividends they distribute. These credits flow through to shareholders, who report both the cash dividend and the grossed-up amount (adding the value of the franking credit) as assessable income on their personal tax return.

This system was designed to prevent double taxation: once at the company level and again at the shareholder level. If shareholders’ marginal tax rate is lower than the company rate, excess franking credits may be refunded, providing a tax benefit beyond the cash dividend itself. Not all dividends can be franked. If a company has untaxed profits or foreign income, the dividend may be partially franked or unfranked (no credits attached).

The imputation system differs from the dividend tax systems of many other countries. In Australia and New Zealand, imputation credits are used. Canada applies its version of gross-up and tax credit. In the US and UK, the absence of a similar system leads to double taxation or relies on different dividend tax preferences.

* * *

## Calculation Methods and Applications

### The Gross-Up and Tax Offset Mechanism

Franked dividends are assessed with a two-step tax process:

1.  **Gross-Up**: Add the franking credit value to the cash dividend received. The sum is your grossed-up income for tax purposes.
2.  **Tax Offset**: Calculate tax on the grossed-up amount at your marginal rate. The franking credit is then used as a tax offset against this liability.

#### Formula Breakdown

-   **Franking Credit (FC):**  
    FC = Cash Dividend × Company Tax Rate / (1 − Company Tax Rate)
-   **Grossed-Up Income (G):**  
    G = Cash Dividend + Franking Credit  
    For a fully franked dividend: G = Cash Dividend / (1 − Company Tax Rate)
-   **Tax Payable or Refund:**  
    Tax Payable = Marginal Tax Rate × Grossed-Up Income − Franking Credit

### Application Across Tax Rates

**Example Calculation (For Illustrative Purposes Only):**  
Suppose an investor receives a cash dividend of AUD 70 from a company paying tax at 30 percent (company tax rate).

-   Franking Credit = 70 × 0.3 / 0.7 = 30
-   Grossed-Up Income = 70 + 30 = 100

At a 37 percent marginal tax rate:

-   Tax = 0.37 × 100 = 37
-   After applying franking credit: 37 − 30 = 7 tax payable

If the investor’s marginal rate is lower, such as 15 percent:

-   Tax = 0.15 × 100 = 15
-   After applying franking credit: 15 − 30 = −15  
    This negative value means the investor receives a refundable tax offset (cash refund).

### Practical Scenarios

-   **Fully Franked Dividend:** Entire cash dividend is accompanied by maximum available franking credits.
-   **Partially Franked Dividend:** Only a portion of the dividend comes with credits. The balance is taxed as an unfranked dividend.
-   **Unfranked Dividend:** No credits are attached. The cash received is taxed fully at the individual’s marginal rate.

* * *

## Comparison, Advantages, and Common Misconceptions

### Advantages of Franked Dividends

-   **Tax Efficiency:** Offsets or eliminates double taxation of company profits.
-   **Potential Cash Refunds:** Shareholders with low or no taxable income (such as some retirees or superannuation funds) may receive the unused portion of franking credits as a refund.
-   **Predictable After-Tax Income:** Investors can project net yields due to documented franking credit entitlements.

### Disadvantages of Franked Dividends

-   **Eligibility Constraints:** Holding period and anti-avoidance rules apply. Non-residents are generally excluded from franking benefits.
-   **Concentration Risk:** Focusing only on highly franked dividends may reduce portfolio diversification, increasing exposure to particular market sectors.
-   **Complexity:** The calculation and eligibility mechanisms involve multiple steps and possible errors.

### Common Misconceptions

-   **Confusing Franked with Unfranked Dividends:** Not all dividends are franked. Incorrect assumptions can lead to tax calculation errors.
-   **Ignoring Gross-Up Mechanism:** Failing to gross up the dividend before claiming the credit understates taxable income or results in over-claiming offsets.
-   **Assuming All Credits Are Refundable:** Only eligible individuals and super funds receive refunds. Non-residents and companies face restrictions.
-   **Believing Franked Dividends Are Always Superior:** Headline franking percentages do not compensate for unsustainable payout ratios or weakening fundamentals.
-   **Overlooking Residency and Holding Rules:** Non-residents cannot claim credits. Short-term trading or "dividend washing" can result in forfeiture and may attract ATO scrutiny.

### Comparison Table: Franked vs Unfranked Dividends

Feature

Franked Dividend

Unfranked Dividend

Tax Efficiency

High (via franking credits)

Low (no credits)

Refundable Credits

Possible for eligible local investors

Not applicable

Double Taxation Avoidance

Yes

No

Suitability for Non-residents

Limited

Possible; subject to withholding tax

Complexity

High

Low

* * *

## Practical Guide

### Step-by-Step: Utilizing Franked Dividends

1.  **Check Eligibility:** Ensure you are a beneficial owner and satisfy the 45-day holding rule (or 90 days for preference shares).
2.  **Assess Dividend Statements:** Identify franked, partially franked, and unfranked components.
3.  **Calculate Your Benefit:** Use the gross-up and offset method described above.
4.  **Maintain Records:** Keep all statements for at least five years for tax audit purposes.
5.  **Plan Portfolio:** Prefer sustainable franked payers with durable earnings to maximize after-tax yield, but avoid sector concentration risks.

### Case Study: Australian Shareholder (Hypothetical Example)

Lucy, an Australian tax resident in a 19 percent tax bracket, receives a fully franked dividend of AUD 2,100 (cash). Her dividend statement shows a franking credit of AUD 900.

-   Grossed-Up Income: 2,100 + 900 = 3,000
-   Tax at 19 percent: 3,000 × 0.19 = 570
-   Less Franking Credit: 570 − 900 = −330

Lucy receives a tax refund of AUD 330. This boosts her total return, demonstrating the value of franked dividends for low-tax investors. (This is a hypothetical example and is not investment advice.)

### Tips for Investors

-   **Diversification:** Avoid overweighting franked dividend payers at the expense of growth or international stocks.
-   **Policy Awareness:** Stay alert to changes in tax or imputation rules that could affect franking benefits.
-   **Software and Broker Tools:** Use platforms such as Longbridge for clear franking data and reporting.
-   **Professional Advice:** Consult a licensed tax advisor for tailored planning, especially if you invest via trusts, SMSFs, or hold complex portfolios.

* * *

## Resources for Learning and Improvement

-   **Official Guidelines:**
    
    -   [Australian Taxation Office – Franking Credits Guide](https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Dividends/)
    -   [ASIC Moneysmart – Dividends and Franking Credits](https://moneysmart.gov.au/shares/dividends)
    -   [ASX – Taxation of Dividends](https://www2.asx.com.au/markets/trade-our-cash-market/taxation-of-dividends)
-   **Professional and Academic References:**
    
    -   CPA Australia guidance on dividend imputation
    -   The Tax Institute technical submissions
    -   Articles in the Australian Tax Forum
    -   [Treasury Reviews – Imputation System](https://treasury.gov.au/consultation)
-   **Key Legislation:**
    
    -   Income Tax Assessment Act 1997, Part 3-6 (Dividends and Franking)
-   **Case Law:**
    
    -   Mills v FCT (2012) HCA 51 (interpretation of franking rule eligibility)
-   **Online Tools:**
    
    -   Dividend calculators from leading brokers and registry platforms

* * *

## FAQs

### What is a franked dividend?

A franked dividend is a payment from an Australian company to a shareholder that includes an attached franking credit, indicating that corporate tax has already been paid on that portion of profit.

### How do I know if a dividend is fully or partially franked?

Check your dividend statement. It will show the franking percentage (for example, 100 percent for fully franked, 50 percent for partially franked) and the value of franking credits attached.

### How do franking credits reduce my tax liability?

You add the cash dividend and franking credit together, declare the grossed-up figure as income, and then apply the franking credit as a tax offset. Any unused credit can be refunded if you are eligible.

### Who can claim franking credits?

Australian residents who are beneficial owners of the shares, have held them at risk for at least 45 days, and have not entered into dividend streaming or anti-avoidance arrangements.

### Are franking credits useful for non-resident investors?

Generally no. Non-residents cannot claim credits, but franked dividends are usually exempt from Australian withholding tax.

### How do I report franked dividends on my tax return?

Your dividend statement will show both the cash amount and franking credit. Report both on your Australian tax return in the relevant sections. Broker platforms often help prefill these numbers.

### What if my franking credits exceed my tax payable?

If eligible, the excess is typically refunded to individuals and complying super funds.

### Can trusts and SMSFs benefit from franking credits?

Yes, if the credits are distributed to eligible beneficiaries and the holding period and other integrity rules are satisfied.

### What is the 45-day holding period rule?

To claim credits, you must generally hold shares at risk for at least 45 days (excluding the day of purchase and sale) around the ex-dividend date.

### Can credits be carried forward or transferred?

Excess credits are refundable to individuals and some super funds, but companies may only carry them forward and cannot receive refunds.

* * *

## Conclusion

Franked dividends are an established feature of the Australian income investing landscape. By attaching franking credits to company payouts, the system allows investors to reclaim or offset tax already paid at the company level, potentially enhancing after-tax returns, especially for retirees, lower income earners, and superannuation funds. The value of these dividends depends on careful compliance with eligibility rules, ongoing policy settings, and a thoughtful approach to portfolio diversification and risk management. Mastery of franked dividends, along with robust recordkeeping and awareness of personal tax obligations, can help investors optimize outcomes while managing potential risks. Access to official guides, tax tools, and professional advice further supports the effective use of franked dividends within a risk-aware investment strategy.


> Supported Languages: [简体中文](https://longbridge.com/zh-CN/learn/franked-dividend-100081.md) | [繁體中文](https://longbridge.com/zh-HK/learn/franked-dividend-100081.md)
