Franking credits in Australia: the calculation from statement to tax

By GrowThenDraw Editorial Team · Updated August 13, 2026 · 12 min read · Editorial policy

A franking credit represents Australian company tax attached to a franked dividend. For an eligible resident individual, the credit affects the tax calculation twice: it is added to the dividend when working out assessable income, then claimed as a tax offset.

That two-step treatment is why neither the cash dividend alone nor a simple marginal-rate shortcut gives a complete answer. Start with the dividend statement, keep the gross-up and offset visible, and treat any refund estimate as conditional on the full tax return and legal entitlement.

Copy the dividend statement before estimating anything

A company dividend statement should identify the franked amount, unfranked amount, attached franking credit and any TFN amount withheld. When those figures exist, use them directly. The company rate inferred from the numbers is a diagnostic, not a reason to overwrite the statement.

Enter only your share of jointly held dividends. This direct-dividend workflow is not a replacement for an AMMA or managed-fund tax statement, which can contain trust distributions, capital gains, foreign income and other components that need separate treatment.

The franking credit formula for an estimate

Before a statement exists, first separate the franked cash from the unfranked cash. Multiply the total cash dividend by its franked percentage. Then calculate the estimated credit as franked cash multiplied by the company rate divided by one minus that rate.

At a 30% rate, a $700 fully franked cash dividend produces a $300 estimated credit: $700 × 30 ÷ 70. Grossed-up dividend income is therefore $1,000. At a 25% rate, the same $700 franked cash produces about $233.33: $700 × 25 ÷ 75.

For a partly franked dividend, apply the formula only to the franked cash portion. A $1,000 cash dividend that is 60% franked has $600 franked cash and $400 unfranked cash. At 30%, its estimated credit is about $257.14, not $428.57.

Gross-up first, then apply the offset

For the calculator's eligible direct-shareholder scenario, assessable dividend income equals franked cash plus unfranked cash plus the franking credit. The attached credit is then applied as a tax offset. Showing these as two separate lines prevents the common mistake of treating the credit as extra company cash.

If the person is not entitled to the credit under the relevant integrity rules, the calculator's comparison includes the cash dividend in assessable income but does not gross up for the denied credit and does not claim that credit as an offset.

Worked FY2026-27 statement example

Assume an Australian-resident adult has $80,000 of taxable income before one dividend. The statement shows $700 franked cash, $200 unfranked cash and a $300 credit. Cash received is $900. In the eligible scenario, grossed-up assessable dividend income is $1,200 and the tax offset is $300.

Under the calculator's narrow FY2026-27 model, income tax plus ordinary single/no-dependants Medicare increases by $384 before the franking offset. After applying the $300 credit, the modelled assessment effect is $84 of additional liability. The modelled after-tax dividend value is therefore $816.

In the not-eligible comparison, assessable dividend income is $900 and no franking offset is applied. The modelled assessment effect is $288 and the after-tax value is $612. These figures illustrate the calculator's exact inputs and exclusions; they are not a forecast of the person's final assessment.

A credit is not automatically a cash refund

For an eligible individual, a refundable franking tax offset can contribute to an excess-credit position after relevant tax liabilities. But the final refund or amount payable depends on the whole assessment: all income, deductions, offsets, withholding, Medicare treatment, study-loan obligations and other return items.

That is why the calculator uses the label modelled assessment effect. A negative result is a potential excess credit generated inside the limited model, not a promised payment from the ATO. It also does not mean the company paid that extra amount to the shareholder.

Eligibility comes before the arithmetic

A person generally needs to satisfy the relevant qualified-person rules to claim a franking tax offset. Holding-period and at-risk rules can require ordinary shares to be held at risk for at least 45 days, excluding acquisition and disposal days; certain preference shares use a longer period. Related-payment arrangements can change the qualifying period.

A small-shareholder rule can matter when an individual's total franking-credit entitlement is no more than $5,000, but it does not turn every arrangement into an eligible claim and related-payment rules still matter. Dividend-washing and other integrity provisions can also deny benefits.

The calculator deliberately asks which scenario to display and always shows both sets of arithmetic. It cannot see trading history, hedges, related arrangements, indirect trust interests or the rest of the year's credits, so it cannot determine entitlement.

Tax rates and Medicare are separate assumptions

The optional personal panel uses FY2026-27 resident individual rates and the Low Income Tax Offset. Its ordinary Medicare option is only for a single person without dependants: zero through $28,011, a 10%-of-excess phase-in through $35,013 capped by the ordinary levy, then 2% above that point.

Family thresholds, SAPTO, partial or full exemptions and the Medicare levy surcharge are outside the model. A person to whom those rules may apply should exclude Medicare and treat the result as incomplete rather than forcing an ordinary-single calculation.

Use yields without double-counting the credit

Cash yield divides the cash dividend by the investment value. Grossed-up yield adds the credit before dividing. They answer different questions and should be labelled separately.

Do not add the grossed-up yield to the cash yield, and do not compare a grossed-up yield with an unfranked cash yield as though both were spendable distributions. The after-tax yield is useful only when the personal tax panel and eligibility assumption are appropriate.

Records and scope to check before lodging

The calculator covers direct Australian-company dividends for an adult Australian-resident individual. It excludes non-residents, minors, companies, trusts, partnerships, super funds, foreign credits, Division 7A, returns of capital and the complete interactions of a tax return. Reconcile the estimate to ATO instructions and use a registered tax agent where entitlement or the amount is material.

• The dividend statement for every direct distribution in the income year.
• Franked cash, unfranked cash, attached credit and TFN withholding copied exactly.
• Your ownership share and the payment or credit date.
• Trading records needed for holding-period and at-risk tests.
• Related-payment, hedging or dividend-washing arrangements.
• Indirect distributions kept with the relevant trust or AMMA statement rather than forced into this direct-dividend calculator.