Franked and unfranked dividends differ in one thing: whether the cash comes with a franking credit for Australian corporate tax the company has already paid. A franked dividend carries that credit and can reduce your personal tax, wipe it out entirely, or generate a refund. An unfranked dividend carries no credit and is taxed like any other income in your hands.
That single distinction drives everything else about how the two are treated at tax time.
Why the Difference Exists
Australia taxes company profits once at the corporate level and then again, in effect, when those profits reach shareholders as dividends. To stop the same dollar being taxed twice, the imputation system attaches a credit to the dividend representing the corporate tax already paid. That attached credit is the franking credit.
Most Australian companies pay tax at 30%. Base rate entities (aggregated turnover below $50 million and no more than 80% passive income) pay 25%.1Australian Taxation Office. Changes to Company Tax Rates The maximum franking credit a company can attach to a distribution is capped by its own tax rate: a 30% company can attach up to 30 cents of credit per 70 cents of cash; a 25% base rate entity can attach up to 25 cents per 75 cents of cash.2Australian Taxation Office. Allocating Franking Credits A company can’t attach more credit than the tax it actually paid.
Franked, Partially Franked, and Unfranked
These three labels describe how much of the underlying profit went through Australian corporate tax before reaching you.
A franked dividend is paid from profits taxed at the company’s full corporate rate and carries the maximum franking credit. From a 30% company, a $70 cash dividend arrives with a $30 franking credit, reflecting the tax already collected on the $100 of pre-tax profit.3Australian Taxation Office. Franking Account
A partially franked dividend is a mix. Some of the underlying profit was taxed in Australia; some wasn’t. The dividend statement breaks out the franked and unfranked portions, and you only get a credit for the franked portion. This often shows up when a company earned income overseas or used deductions that reduced its Australian tax bill.
An unfranked dividend carries no franking credit at all. The distributed profits were not subject to Australian corporate tax, typically because they came from foreign sources or because accumulated tax losses wiped out the company’s taxable income. You receive the full cash amount but get no offset.
Companies don’t always choose freely. If the franking account is low or empty, the company can’t frank the distribution. Businesses with large offshore operations or significant carried-forward losses frequently pay unfranked or partially franked dividends because they haven’t generated enough Australian tax credits to distribute.
How Franking Credits Change Your Tax Bill
As an Australian resident, you don’t just add the cash dividend to your income. You gross up the dividend by adding the franking credit, include the grossed-up figure in your assessable income, and then claim the franking credit as a direct tax offset against your total tax payable.4Australian Taxation Office. Franking Tax Offsets The offset reduces tax on all your income, not just on the dividend itself.
The outcome depends on how your marginal rate compares to the corporate rate. For 2025–26, resident individual rates are:
- $0–$18,200: no tax
- $18,201–$45,000: 16%
- $45,001–$135,000: 30%
- $135,001–$190,000: 37%
- $190,001 and above: 45%
A 2% Medicare levy applies on top.5Australian Taxation Office. Tax Rates – Australian Resident The examples below use base rates only.
When Your Rate Is Higher Than the Corporate Rate
Say your marginal rate is 45% and you receive a fully franked $70 cash dividend from a 30% company. You add the $30 franking credit to reach $100 of grossed-up income. Tax at 45% on $100 is $45. Subtract the $30 credit, and you pay $15. You cover only the gap between the corporate rate and your personal rate.
When Your Rate Equals the Corporate Rate
At a 30% marginal rate, the same $100 grossed-up income produces $30 in tax. The $30 franking credit wipes it out entirely. Net tax on the dividend: zero.
When Your Rate Is Lower Than the Corporate Rate
At a 16% marginal rate, the $100 grossed-up income attracts $16 in tax. The $30 franking credit exceeds that liability by $14, and the ATO refunds the $14 in cash.6Australian Taxation Office. Refund of Franking Credits for Individuals Retirees with low taxable income and self-managed super funds in pension phase rely on this refund mechanism.
The Unfranked Comparison
If the same $70 arrived as an unfranked dividend, you’d simply add $70 to your assessable income with no gross-up and no offset. At a 30% marginal rate, that’s $21 in tax on the dividend instead of zero. The franking credit was worth the entire $21.
The 45-Day Holding Period Rule
You can’t buy shares the day before a dividend, collect the franking credit, and sell. To claim the credit, you must hold the shares “at risk” for at least 45 days during the qualification period around the ex-dividend date. For preference shares, the period is 90 days.7Australian Taxation Office. Rules on Claiming a Franking Credit Refund “At risk” means you bear genuine economic exposure to share price movements. Hedging the position with derivatives that neutralise your downside can disqualify the holding period.
The qualification window starts the day after you acquire the shares and ends 45 days after the shares go ex-dividend. Miss the 45 qualifying days, and you lose the credit entirely.
Individuals get one concession. If your total franking credits from all sources for the year are $5,000 or less, the 45-day rule doesn’t apply. Cross $5,000 and the exemption disappears for every dividend, not just the amount above the threshold. The small shareholder exemption is only available to individuals; SMSFs, companies, and trusts must satisfy the holding period regardless of the credit amount.
Non-Resident Investors
Non-residents don’t gross up dividends or claim franking credits. Instead, Australian companies withhold tax before paying, and that withholding is a final tax with no further Australian obligation on the dividend.
Fully franked dividends paid to non-residents are exempt from withholding tax, because the corporate tax has already been paid on the underlying profits.8Australian Taxation Office. Dividends and Non-Resident Companies and Shareholders Non-residents cannot claim a refund of excess franking credits; the credit only zeroes out the withholding tax.
Unfranked dividends attract withholding at a statutory 30%.9Australian Taxation Office. Withholding Rate In practice the rate is often reduced to 15% under a tax treaty. Australia has treaties with more than 40 countries, and most cap dividend withholding at 15%.8Australian Taxation Office. Dividends and Non-Resident Companies and Shareholders For a partially franked dividend, the franked portion is exempt and the unfranked portion is withheld at the applicable rate. Any portion declared as conduit foreign income is also exempt from withholding.
Reading Your Dividend Statement
Australian companies must issue a dividend statement when they pay or credit a dividend. It has to show the company name, payment date, total distribution, franking credit attached, franking percentage, and the split between franked and unfranked portions.10Australian Taxation Office. Dividend or Distribution Statement Any conduit foreign income component is separately identified, as is any TFN withholding deducted if you haven’t provided your tax file number.
Keep every statement. You need the franking credit figure to complete your return, and the ATO pre-fills company data to cross-check what shareholders report. On a partially franked dividend, the credit applies only to the franked portion. Applying it to the whole dividend is a common error that triggers an ATO adjustment.