How Australian franking credits work
Australian companies pay 30% tax on their profits before distributing dividends. Without the dividend imputation system, shareholders would be taxed twice on the same money — once at the corporate level and again at the individual level. Franking credits prevent this double taxation by attaching a credit to each dividend representing the tax the company has already paid on your behalf.
A fully franked dividend means the company paid the full 30% corporate tax rate on the profits funding that dividend. A 50% franked dividend means the company paid 30% tax on half the profits. Unfranked dividends carry no credit — they come from profits taxed at a different rate or from foreign income.
The grossing-up calculation
When you receive a $70 fully franked dividend, the company paid $30 in tax to generate it. The grossed-up dividend is $100 — the full pre-tax profit. In your tax return, you declare the $100 grossed-up amount, include the $30 franking credit as an offset, and pay tax at your marginal rate on $100. If your marginal rate is below 30%, the ATO refunds you the difference.
- At 0% (no income): You receive the full $30 franking credit as a cash refund.
- At 19%: Tax on $100 grossed-up = $19. Credit = $30. ATO refunds $11.
- At 32.5%: Tax on $100 = $32.50. Credit = $30. You pay $2.50 top-up.
- At 45%: Tax on $100 = $45. Credit = $30. You pay $15 top-up.
This is why franking credits are most valuable for investors on lower marginal tax rates — particularly retirees drawing down from superannuation at 0% tax, who receive the entire franking credit as a cash refund every financial year.
How to claim: Your share registry will send an annual dividend statement showing the cash dividend and franking credit for each payment. Declare these at Item 11 (Dividends) in your individual tax return. The ATO pre-fills much of this data — always verify it matches your actual statements before lodging.
The highest grossed-up yields on the ASX
For investors seeking fully franked income, Australian banks and broad-market ETFs consistently offer the strongest grossed-up yields. VAS (Vanguard Australian Shares) and A200 (BetaShares) both pay approximately 4.0–4.5% cash yield with 100% franking, equating to a grossed-up yield of around 5.7–6.4%. Westpac, ANZ, NAB, and CBA have historically offered fully franked cash yields of 4–6%, making the grossed-up yield particularly compelling for investors in lower tax brackets.