{"id":102283,"date":"2024-04-24T03:42:05","date_gmt":"2024-04-24T03:42:05","guid":{"rendered":"https:\/\/arielle.com.au\/?p=102283"},"modified":"2026-07-20T11:37:02","modified_gmt":"2026-07-20T11:37:02","slug":"how-do-franking-credits-work","status":"publish","type":"post","link":"https:\/\/arielle.com.au\/how-do-franking-credits-work\/","title":{"rendered":"What Are Franking Credits, And How Do They Work?"},"content":{"rendered":"Reading Time: <\/span> 6<\/span> minutes<\/span><\/span>\n

Australia\u2019s unique approach to offering investors franking credits on dividends aims to ensure that company profits are only taxed once.<\/p>\n\n\n\n

The system was introduced in the 80s, then evolved in the 2000s to allow investors to claim a cash refund if their franking credit exceeded their tax owed.<\/p>\n\n\n\n

Controversy arising from an attempt to reverse that generous policy – by ending cash refunds – was a major reason for Labor\u2019s surprising loss<\/a> in the 2019 election.<\/p>\n\n\n\n

(Related: 7 Lies FIRE Movement Tells About Freedom<\/a>).<\/strong><\/p>\n\n\n\n

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Key Takeaways:<\/th><\/tr><\/thead>
The goal of franking credits is to prevent double taxation.<\/td><\/tr>
If the company you own shares in has already paid tax on its profits, the Australian government gives you an equivalent amount as a tax offset.<\/td><\/tr>
The company tax rate is 25%. If your personal tax rate is the same, your dividends are pretty much tax free, as you get an offset for the 25% tax the company has already paid.
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If the company you own shares in has already paid tax on its profits, the Australian government gives you an equivalent tax offset.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

It\u2019s rare that tax policy doesn\u2019t become political.<\/p>\n\n\n\n

Still, the issue of double taxation has been a particular bone of contention both in the public sphere and among ordinary Aussies \u2014 in part driven by confusion about how franking credits work and divisive views on their fairness.<\/p>\n\n\n\n

Let\u2019s explore why they exist and how franking credits work.<\/p>\n\n\n\n

(Related: How To Buy Nvidia Stock In Australia<\/a>)?<\/strong><\/p>\n\n\n\n

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What Is Franking Credit?<\/strong><\/h2>\n\n\n\n

Dividends are drawn from a company\u2019s income and become investor income once distributed.<\/p>\n\n\n\n

Both types of income are taxed by the ATO.<\/p>\n\n\n\n

However, franking credit, also known as imputation credit or imputed tax credit, negates your share of tax paid by a company that pays you dividends.<\/p>\n\n\n\n