iWhy the credit exists
Australian resident companies pay tax, and the ATO calls the way that tax is passed on to shareholders the imputation system: the company imputes, or attributes, the tax it has paid to you, and that tax attaches to your dividend as a franking credit. Moneysmart says it can help prevent the same income being taxed twice.
A dividend can be fully franked, where the whole amount carries a franking credit, or partly franked, with a franked part and an unfranked part. An unfranked dividend was paid from profits on which no Australian company tax was paid, so it carries no credit. The statement the company sends you must show the franking credit and the franked and unfranked amounts.
The same credit goes by several names on paperwork. The ATO lists imputation credit, imputation tax credit, imputed credit, imputed tax credit and Australian franking credit, among others.
iiThe sum, in the ATO’s own example
The ATO’s guide You and your shares 2026 follows one shareholder, paid a fully franked dividend of $700 and an unfranked dividend of $200, with a franking credit of $300. He has $80,000 of other income. The Medicare levy is left out of the sum.
| Line | $ |
|---|---|
| Unfranked dividend | 200 |
| Franked dividend | 700 |
| Franking credit, non-cash | 300 |
| Assessable income from other sources | 80,000 |
| Total taxable income | 81,200 |
| Tax on $81,200 | 15,148 |
| less franking tax offset | 300 |
| Tax payable, before the Medicare levy | 14,848 |
Figures from ATO, You and your shares 2026: Effect on tax payable.
Read down the column and the logic is visible. The $300 credit is not money he receives (the ATO’s table calls it non-cash). It is added to his income and his tax is worked out on that higher figure, then the same $300 comes off his tax as the franking tax offset. You do not have to claim the offset separately; it appears on your notice of assessment.
When the offset is bigger than the tax
The offset can reduce tax on all your income, not only dividends, and on a taxable net capital gain. If you are an eligible resident individual, any excess is refunded after your income tax and Medicare levy are met. The ATO’s illustration has $700 of tax and Medicare levy, after other offsets, against a $1,000 franking tax offset, leaving a $300 refund.
iiiWhen a credit cannot be claimed
A statement can show a franking credit you are not entitled to. The ATO sets out integrity rules, and you can claim the offset only for shares that satisfy them.
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The holding period rule
You must hold the shares ‘at risk’ for at least 45 days, or 90 days for certain preference shares, not counting the day you acquire them or the day you dispose of them. Days on which you carry 30% or less of the ordinary risks of loss and opportunities for gain do not count, and the ATO names hedges, options and futures as arrangements that can reduce that risk. You only need to satisfy it once for each purchase of shares.
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The small shareholder exemption
The holding period rule does not apply if your total franking credit entitlement for the income year is under $5,000. Above that, if a parcel fails the rule, you cannot claim any of its franking credits, and you cannot limit your claim to $5,000.
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The related payments rule
A related payment passes the benefit of a franked dividend on to someone else. If you make, must make or are likely to make one, you cannot claim the offset even if you meet the holding period rule, and this rule applies to every dividend on every parcel, whatever the size of your credits.
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Dividend washing
Selling shares while keeping the right to a dividend, then buying substantially identical shares through a special ASX trading market, is what the ATO calls dividend washing. The integrity rule stops you claiming a second set of franking credits from it. The ATO adds a warning for people who receive $5,000 or less in franking credits and are exempt from this rule: if they enter into a scheme to get franking credit benefits, the Commissioner may still apply the general anti-avoidance rules to them.
If you are not entitled to the offset, the ATO says to show the franked dividend in your tax return but not the franking credit. How the holding period interacts with the ex-dividend date is explained in ex-dividend dates.
ivA refund when you do not lodge a return
If you lodge a tax return, the dividends and franking credits you declare in it are used to work out your refund or tax payable, and there is nothing else to do. If you do not need to lodge a return, the ATO offers a separate application for a refund of franking credits, online, by phone or by post. Reinvesting your dividends does not stop you claiming a refund.
The automatic refund
For tax time 2026, the ATO says it will automatically refund franking credits to eligible people, using what share registries report to it. A selection of its criteria:
- you were over 60 years old on 30 June 2026
- you have held the same parcel of shares across the last 2 income years
- you are not a tax agent client, and the ATO has your current postal address
- your total franking credit refund is no more than $5,460, and your total dividend income no more than $18,200
- you have no capital gains tax, and no other income that requires you to lodge a return
The full list is longer, and lodging a return or an application before the automatic process runs takes you out of it. Check the whole of the ATO’s page before relying on it.
Two cases with their own rules
- No tax file number. If a company does not have your TFN and the dividend is partly or fully unfranked, tax is withheld from it, and you add the amount withheld to the unfranked amount you declare.
- New Zealand companies. Some New Zealand companies pay dividends with Australian franking credits, which you can claim. New Zealand imputation credits cannot be refunded by the ATO.