Tax on Dividends in Australia 2026-27: Franking Credits Explained

If you received a $7,000 fully franked dividend this year, here’s the number that matters most: you don’t declare $7,000. You declare $10,000 — the cash plus a $3,000 franking credit for company tax already paid on your behalf. That $3,000 then comes straight off your tax bill. Depending on your marginal rate, the same dividend can produce a cash refund or a top-up bill. Here’s exactly how that works in 2026–27 dollars, including the traps that catch even experienced investors.

How dividends are taxed in Australia

Start with the non-negotiable rule: every dividend is assessable income — ASX shares, ETFs, managed funds, overseas companies, all of it. There is no special “dividend tax rate”; dividends join your other income and are taxed at your marginal rate.

What changes the outcome is franking — whether the company already paid Australian tax on the profit it’s distributing:

• Fully franked — the company paid tax on the whole amount. A $700 fully franked dividend from a company taxed at 30% carries a $300 credit.
• Partially franked — tax was paid on only part of it, common when a company earns income overseas. A 50% franked $700 dividend carries a $150 credit.
• Unfranked — no Australian company tax was paid, so there’s no credit. You pay your full marginal rate on the cash. This is standard for overseas shares and some trusts.

The same $7,000 of cash income can therefore produce wildly different tax bills. That difference is the entire game.

Franking credits and the gross-up: how the maths actually works

Australia runs a dividend imputation system: company profit is meant to be taxed once, not twice. When a company pays tax and distributes what’s left, it attaches a franking credit as a receipt for the tax paid. You “gross up” the dividend — add the credit to the cash — declare that larger figure, then claim the credit as a tax offset.

The formula depends on the company’s tax rate. Most large ASX companies pay 30%; smaller base rate entities pay 25% (the company-rate rules are in our company tax rates guide).

• 30% company: credit = cash dividend × 30 ÷ 70. Grossed-up dividend = cash ÷ 0.7.
• 25% company: credit = cash dividend × 25 ÷ 75. Grossed-up dividend = cash ÷ 0.75.

So $700 fully franked from a 30% company = $300 credit = $1,000 of declared income. The same $700 from a 25% company = $233 credit = $933 of declared income. Keep that second formula in mind — it becomes a trap later.

Here’s what that $700 / $300 / $1,000 dividend is worth after tax at every 2026–27 resident marginal rate, including the 2% Medicare levy:

Two things fall out of that table. First, the break-even point sits just above 30% — the company rate the credit represents. Below it you get cash back; above it you top up. That’s why franking credits are gold for retirees and nearly irrelevant to top-bracket earners. Second, the Medicare levy is the bit the credit can never cover — it’s calculated on the grossed-up income and there’s no offset against it. Note the 2026–27 brackets above use the new 15% second bracket (it was 16% last year).

Worked examples in real 2026–27 dollars

Example 1 — the retiree refund. Diane has $12,000 of other income and receives $10,500 in fully franked dividends from 30%-taxed companies. Credit = $10,500 × 30 ÷ 70 = $4,500. Grossed-up dividend = $15,000. Taxable income = $27,000.

• Income tax: ($27,000 − $18,200) × 15% = $1,320
• Less low income tax offset: $1,320 − $700 = $620 (see our tax offsets guide — most refund examples quietly ignore this)
• Medicare levy: $27,000 × 2% = $540*
• Total tax: $1,160. Franking offset: $4,500.
• Refund: $3,340.

*The 2026–27 low-income Medicare thresholds hadn’t been published when this was written; at the 2025–26 thresholds an income of $27,000 would pay little or no levy, which would make this refund slightly larger.

Example 2 — the mid-career top-up. Marcus earns a $95,000 salary (see what that costs in our $100k salary tax breakdown) and receives a $7,000 fully franked dividend: $3,000 credit, $10,000 grossed-up. His marginal rate is 30% + 2% Medicare = 32%. Tax on the dividend slice: $10,000 × 32% = $3,200, less the $3,000 credit = $200 extra tax. He keeps $6,800 of the $7,000 — the franked dividend almost pays its own tax.

Example 3 — the top bracket. Priya earns $210,000 and receives $14,000 fully franked: $6,000 credit, $20,000 grossed-up. Marginal rate 45% + 2% = 47%. Tax on the slice: $20,000 × 47% = $9,400, less $6,000 credit = $3,400 top-up. Franking doesn’t cap her rate at 30% — it just removes the double tax. Want to check your own numbers? Run them through our income tax calculator.

The 25% franking trap: “fully franked” doesn’t always mean a 30% credit

Here’s the trap almost nobody warns you about. “Fully franked” only means the company attached the maximum credit its own tax rate allows — and for a base rate entity, that’s calculated at 25%, not 30%.

Take a $7,500 fully franked dividend from a small-cap base rate entity: credit = $7,500 × 25 ÷ 75 = $2,500, grossed-up to $10,000. The identical dividend from a 30% company would carry $3,214 and gross up to $10,714. For our 32% marginal-rate investor, the small-cap dividend costs $3,200 − $2,500 = $700 in top-up tax versus $3,429 − $3,214 = $215 from the big company. Same “fully franked” label, nearly $500 difference.

It gets worse on the company side. A business that paid tax at 30% in earlier years but now qualifies as a base rate entity can only frank new dividends at 25% — the older 30%-rate credits sit trapped in its franking account. And a company that attaches more franking than its rate allows pays franking deficit tax — which is why companies almost never over-frank, and why you should always read the actual credit on your statement rather than assuming 30%.

The 45-day rule and the $5,000 exemption

To stop people buying shares the day before a dividend just to harvest the credit, the ATO’s holding period rule requires you to hold shares “at risk” for at least 45 days (90 for certain preference shares) — excluding the day you buy and the day you sell. “At risk” means genuine economic exposure: hedging the position with options or derivatives pauses the count.

A worked count: you buy on 1 April and sell on 20 May. Exclude both days and count 2 April → 19 May = 48 days. That clears 45, so the credits are yours. Sell on 10 May instead and you count only 38 days — the credits are gone.

The relief valve is the $5,000 small-shareholder exemption: if your total franking credit entitlement for the year stays at or below $5,000, the 45-day rule doesn’t apply at all. The ATO notes that’s roughly a $11,667 fully franked dividend from a 30% company, or $15,000 from a 25% company. But understand the cliff: exceed $5,000 and the exemption vanishes entirely — you can’t cap your claim at $5,000. It’s for individuals only; SMSFs must satisfy the holding rule regardless.

Two related integrity rules complete the picture. The related payments rule denies the credit if you’re obliged to pass the dividend to someone else (securities lending is the classic case). And dividend washing — selling after the dividend then buying near-identical shares to claim two sets of credits — lets the ATO deny the second claim.

Dividend reinvestment plans are still taxed

Enrolling in a DRP changes nothing about the tax. The ATO treats you as if you received the cash dividend and immediately used it to buy shares — so you declare the dividend (and claim the franking credit) exactly as normal.

The part people get wrong is the CGT cost base of the new shares: it’s the cash dividend amount used to acquire them — not the grossed-up figure. Reinvest a $360 dividend and your 45 new shares have a total cost base of $360, even though you declared more than that as income. The franking credit never enters the cost base. The acquisition date is the day the new shares are issued, which also restarts the 12-month CGT discount clock on that parcel.

One practical warning: DRPs are among the dividends most often missing or incomplete in myTax pre-fill, so reconcile them manually from your statements.

Getting excess credits back as a refund

Since 1 July 2000, excess franking credits have been fully refundable in cash — before that, any leftover credit was simply lost. If your credits exceed your total tax, the ATO pays you the difference. This is why franked dividends are so valuable to retirees, low-income investors and SMSFs in pension phase (0% tax → the whole credit comes back).

Claiming is straightforward if you lodge a return: dividends go at item 11 — 11U for the unfranked amount, 11T for the franked amount, 11V for the franking credit — and the ATO does the rest on your notice of assessment. Two details matter:

• If you fail the holding-period rule, you declare the franked cash amount at 11T but put nothing at 11V — no gross-up, no credit.
• If you don’t need to lodge a return at all, you can still claim via the ATO’s standalone Refund of franking credits application through myGov/ATO online, by phone, or on paper.

Never trust pre-fill blindly: overseas dividends, small caps and DRPs are the entries most likely to be wrong or absent. Under-reporting draws ATO attention; over-reporting costs you money.

Overseas investors and foreign dividends

If you’re a non-resident, the franked portion of Australian dividends is generally exempt from withholding tax and treated as non-assessable non-exempt income. The unfranked portion faces 30% withholding tax at source, reduced by tax treaties (for example, 15% under the Australia–US treaty).

If you’re an Australian resident receiving foreign dividends — say from US shares — the dividend is fully assessable here with no franking credits, but the foreign withholding tax isn’t lost: with a W-8BEN form the US withholds 15%, and you claim a foreign income tax offset for it on your Australian return. Our foreign income tax guide works through that claim step by step.

ETF investors sit in the middle: Australian equity ETFs pass franking credits straight through to you in the same proportion as the underlying dividends, while international equity ETFs generally distribute no franking at all. Check the fund’s distribution history and franking percentage before you buy for yield — our ETF tax guide covers the full picture.

Common mistakes that cost real money

• Declaring the cash amount instead of the grossed-up amount. The most common error. Declare cash + credit, then claim the credit — declare only the cash and you’ve understated income.
• Assuming “fully franked” means a 30% credit. Check the actual credit and franking percentage on every statement — small-caps frank at 25%.
• Forgetting the DRP is taxable. No cash arrived, but the ATO still wants its cut — and the new shares’ cost base is the cash dividend only.
• Not quoting your TFN to the share registry. No TFN means the payer withholds tax at 47% from your dividends. Quote it once and the problem disappears.
• Trusting myTax pre-fill. It’s a starting point, not a finished return — especially for DRPs, small caps and foreign dividends.

Tips to keep more of your dividends

• Compare investments on grossed-up yield, not cash yield — a 5% fully franked dividend from a 30% company is a 7.14% pre-tax yield.
• If your total franking credits will exceed $5,000 and you trade actively, track your 45-day holding periods per parcel — a spreadsheet beats a surprise denial.
• There’s no tax difference between taking a DRP and taking cash on the dividend itself — decide on investment grounds, but remember the new parcel’s CGT clock.
• Low-income year? Franked dividends can generate a genuine cash refund — don’t leave it unclaimed because you assumed you “don’t need to lodge”.

Frequently asked questions

Do I declare the cash I received or the grossed-up amount?

The grossed-up amount — cash plus franking credit. myTax splits them across 11U (unfranked), 11T (franked) and 11V (credit), and the credit comes off your tax as an offset.

I never saw the cash — my dividend was reinvested. Is it still taxable?

Yes. A DRP is taxed exactly as if you’d received the cash, franking credit included. The new shares get a CGT cost base equal to the cash dividend amount (not grossed-up), acquired on the issue date.

Why did my refund get smaller when I added franking credits?

The credit itself never shrinks a refund — it always adds to it dollar for dollar against the tax on the dividend. What can shrink your overall refund is the extra grossed-up income: it can push you over thresholds for the Medicare levy, HECS/HELP repayments, or the phase-out of offsets like LITO. If your refund moved the wrong way, check which threshold you crossed rather than blaming the credit.

I sold my shares, then the dividend arrived. Whose income is it?

Yours, if you held the shares on the record date (in practice, bought before the ex-dividend date). The payment date is irrelevant — entitlement is fixed at the record date, so a dividend landing in your account after a sale is still your assessable income for that year.

I’m a non-resident now. Do I pay Australian tax on dividends?

On the franked portion, generally no — no withholding tax and it’s non-assessable. On any unfranked portion, withholding tax (usually 30%, treaty rates may be lower) is deducted before the money reaches you, and that’s the end of your Australian obligation on it.

Do I have to lodge a tax return just to get franking credits back?

No. If your income is below the lodgement threshold, use the ATO’s Refund of franking credits application via myGov, phone or paper instead of lodging a full return — as long as you meet the holding-period and related-payment rules.

Wrapping up

Dividend tax in Australia rewards one habit above all: reading the dividend statement properly. The cash amount, the franking percentage and the actual credit tell you everything — what to declare, what you’ll get back, and whether the 45-day rule or the 25% trap applies. Get those three numbers right and the rest is arithmetic. This is general information, not personal tax advice — if your situation involves trusts, SMSFs or residency changes, a registered tax agent is worth the fee.