Question 1

What are franking credits?

Accepted Answer

Franking credits (also called imputation credits) represent tax that an Australian company has already paid on its profits before distributing dividends to shareholders. When you receive a franked dividend, you receive a credit for the company tax already paid, which reduces your personal tax liability or may result in a refund.

Question 2

How does dividend imputation work?

Accepted Answer

Under the dividend imputation system, company profits are taxed at the corporate rate (30%). When dividends are paid to shareholders, the franking credit (representing the company tax paid) is attached. Shareholders include the grossed-up dividend in their taxable income and receive a tax offset equal to the franking credit. This prevents the same income being taxed twice.

Question 3

Can I get a refund from franking credits?

Accepted Answer

Yes. If your franking credits exceed the tax you owe on the dividend income, the excess is refunded to you by the ATO. This commonly occurs for low-income earners, retirees, and self-managed super funds in pension phase. The refund was introduced in 2000 and is a key feature of the Australian imputation system.

Question 4

What is the difference between fully franked and partially franked dividends?

Accepted Answer

A fully franked dividend has a 100% franking percentage, meaning the company has paid the full 30% corporate tax rate on that portion of profits. A partially franked dividend has a franking percentage less than 100%, meaning only part of the dividend carries a franking credit. Unfranked dividends carry no franking credits at all.

Question 5

What is the company tax rate used for franking credits?

Accepted Answer

The standard Australian corporate tax rate is 30%, which is used to calculate franking credits for most companies. Small and medium businesses with aggregated turnover below $50 million may pay a reduced rate of 25%, but the franking credit calculation for shareholders is based on the rate of tax actually paid by the company on those profits.

Cash Dividend Received	$5,000
+ Franking Credit	+$2,143
= Grossed-Up Dividend	$7,143
Tax on Dividend Portion	$2,286
- Franking Credit Offset	-$2,143
= Net Tax on Dividend	$143
After-Tax Dividend Income	$4,857

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