Dividends and franking credits
Australian-resident companies pay tax on dividends they pay to shareholders, this system is the 'imputation system'. This is because the company may impute or attribute the tax they pay to you. The tax they allocate to you attaches to the dividend they pay as a franking credit.
If your dividends are franked or partly franked, you need to let us know your:
- franked amount
- franking credit.
If you're an Australian resident, we'll use this information to:
- reduce your tax liability from assessable income, like wages , allowances, net capital gains, dividends and interest
- refund any franking credits to you after your tax and Medicare levy liabilities are met.
Eligibility for a refund
You're eligible for a refund of franking credits, if all of the following apply:
- You receive franked dividends, on or after 1 July 2000, either directly or through a trust or partnership.
- Your basic tax liability is less than your franking credits, after taking into account your eligibility to any other tax offsets.
- You meet our integrity rules, which are designed to ensure everyone pays their fair share of tax.
If you receive a dividend from a New Zealand company that pays Australian franking credits, you can claim the Australian franking credits.
Keeping records
You need to keep dividend statements from the:
- company that pays the franked dividend
- trust or partnership that makes the distribution containing the franking credit.
These statements should show the:
- franked amount
- unfranked amount
- franking credit
- date of payment
- tax withheld from the dividend.
Tax will be withheld from your dividend if both:
- the paying company doesn't have your TFN
- the dividend is partly or fully unfranked.
You must add the tax withheld to the unfranked dividend amount you declare in your tax return.
Integrity rules
You must meet the integrity rules to qualify for a refund.
For each parcel of shares, you must meet both the:
You are a qualified person if you meet both the holding and related payments rules.
If your total franking credits entitlement for the income year is less than $5,000 you only need to meet the related payments rule.
You can only claim a franking credits tax offset for shares that satisfy the integrity rules. If you can't claim a refund, don't include those franking credits in your tax return.
Holding period rule
The holding period rule applies if your total franking credit entitlement for the income year is $5,000 or more.
Total franking credits entitlement of $5,000 or more
The holding period rule applies to shares bought on or after 1 July 1997. To be eligible for a franking tax offset you must hold the shares 'at risk' for at least 45 days. The period is 90 days for preference shares. Don't count the day of acquisition or disposal.
You only need to satisfy the holding period rule once for each share purchase. This rule applies when your total franking credit entitlement for the income year is $5,000 or more. This is roughly equivalent to receiving a fully franked dividend of either:
- $11,667 (for companies with a tax rate of 30%)
- $15,000 (for companies with a tax rate of 25%).
If you have more than $5,000 in franking credits from a single parcel of shares and didn't satisfy the holding period rule, you can't claim any franking credits tax offset for those franking credits. This means you can't limit your franking credit claim to a maximum of $5,000. If you can't claim a franking tax offset, don't include the franking credits in your tax return.
If you're a partner in a partnership or a beneficiary of a trust, both you and the partnership or trust must satisfy the integrity rules to be eligible for the refund of franking credits.
Total franking credits entitlement below $5,000 (small shareholder exemption)
Under the small shareholder exemption, ignore the holding period rule if all your franking credit tax offset entitlements for the income year are less than $5,000. This applies whether you receive the dividend or distribution directly from a shareholding, or indirectly through a trust or partnership. You still need to meet the related payments rule for each dividend payment.
Related payments rule
A related payment is a payment that passes on the benefit of the franked dividend to someone else.
It applies to you if you make, must make, or will likely make, a related payment. If this rule applies, you can't receive a franking credits tax offset even if you satisfy the holding period rule. You must satisfy the related payments test for each dividend payment or distribution for each parcel of shares in your share portfolio.
If you're a partner in a partnership or a beneficiary of a trust, both you and the partnership or trust must satisfy this rule to be eligible for the refund of excess franking credits.
Dividends from a partnership or trust
You are eligible for a refund of franking credits if you're a:
- resident individual
- partner in a partnership
- beneficiary of a trust.
If you are a partner in a partnership, you're entitled to the franking credit if all of the following apply:
- the partnership distributes a share of the net income or loss to you
- that share matches your interest in the partnership.
If you're entitled to franking credits, you can claim a franking credits tax offset which can be used to reduce your tax liability on other assessable income.
If you are a beneficiary of a trust and you get a franked distribution, you will be entitled to a share of the franking credit attached to that distribution if:
- the trust has net income greater than zero to distribute
- you are presently entitled to that income.
Your share of the franking credit will be shown on the distribution statement. If there are no franking credits on the statement, the distribution is an unfranked distribution and you aren't entitled to a franking credit tax offset.
If the trust doesn't make a distribution because it has no income to distribute, you can't claim any franking credits that the trust has in its accounts.
For more information, see Franked distributions.
Applying for a refund of franking credits
If you meet the eligibility criteria to apply for a refund of franking credits, there are several options to lodge depending on your circumstances.
If you're required to lodge a tax return, see the instructions for claiming franking credits:
- myTax 2024 Dividends
- 11 Dividends 2024 (paper).
If you don't need to lodge a tax return, see How to apply for a refund of franking credits for your options.