Updated 8 September 2026
Work out the franking credit on a dividend, the tax the shareholder pays on it, and whether they get a refund. 2026-27 rates.
25% needs turnover under $50m and no more than 80% passive income.
Salary, business income, everything except this dividend.
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The credit is the company tax already paid on the profit behind the dividend. For a fully franked dividend the formula is the cash amount multiplied by the company's tax rate divided by one minus that rate.
At 30% that is cash divided by 0.7, less the cash. At 25% it is cash divided by 0.75, less the cash. The cash plus the credit is the grossed-up dividend, and that grossed-up figure is what goes into the shareholder's assessable income, not the cash.
Worked example. A company on 30% pays a $70,000 fully franked dividend. The franking credit is $70,000 x 30/70, which is $30,000. The shareholder declares $100,000, is taxed on $100,000 at their marginal rate, then subtracts the $30,000 credit. On the top rate they owe more. Below about the 30% bracket they get a refund.
A base rate entity franks at 25%. Everything else franks at 30%. A company is a base rate entity for an income year if its aggregated turnover is under $50 million and no more than 80% of its assessable income is base rate entity passive income, which covers dividends, interest, rent, royalties and net capital gains.
This catches people out in two directions. A trading company that has a big year of passive income can tip over the 80% test and frank at 30%. A passive investment company almost never qualifies for 25% at all, whatever its turnover.
The rate you frank at is the company's rate for the year the dividend is paid, worked out on the prior year's figures. Get it wrong and the franking credit on the distribution statement is wrong, which is the shareholder's problem as much as the company's.
Franking credits are a tax offset, and for individuals and complying super funds they are refundable. If the credit exceeds the tax on the grossed-up dividend, the difference comes back as cash. That is why a fully franked dividend can be worth more to a low-rate shareholder than to a high-rate one, and it is the whole basis of dividend planning inside a family group.
Companies are different. A company receiving a franked dividend gets a non-refundable offset and a credit to its own franking account instead.
A large refundable excess credit landing on a low-income beneficiary, where the money is then used by someone else, is the exact pattern section 100A looks at. If the calculator shows a refund, it is worth reading the arrangement against the section 100A risk checker before you paper it.
You cannot frank a dividend the franking account cannot support. Franking more than the balance produces a franking deficit, and franking deficit tax is payable, so the practical limit is the balance.
Work backwards from the balance rather than forwards from the dividend you wanted to pay. At 30%, a $50,000 franking account balance fully franks a cash dividend of $116,667 and no more. The calculator shows this figure whenever the account is short, so you can size the dividend to the credits instead of discovering the problem at lodgement.
Partly franking is available but it engages the benchmark franking percentage rules, which broadly require you to frank all distributions in a period to the same percentage. Deliberately varying it between shareholders is not a planning option.
The standard fix for a shareholder loan heading for a minimum repayment shortfall is to declare a franked dividend and set it off against the loan. It is the same money moving on paper rather than in cash, and it works, but the order and the dates matter.
Work out the repayment first with the Division 7A calculator, declare a dividend large enough to cover it, and make the set off effective on or before 30 June. A resolution dated in July does not fix a shortfall for the year that has closed.
Rates used: company tax 25% for base rate entities and 30% otherwise; 2026-27 individual rates of nil to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above, plus the 2% Medicare levy. Verified 8 September 2026 against the ATO. Excludes offsets, HELP and the Medicare levy surcharge.
The calculator gives you the number. Getting the resolution, the distribution statement and the franking account entries right is where it usually comes unstuck, particularly when a Division 7A loan is involved.
Or work out the Division 7A repayment the dividend has to cover
Cash dividend multiplied by the company tax rate, divided by one minus that rate. At 30%, a $7,000 dividend carries $3,000 of credits. At 25%, the same $7,000 carries $2,333. The cash plus the credit is the grossed-up amount that goes into the shareholder's return.
You are taxed on the grossed-up amount at your marginal rate, then you subtract the credit. If your marginal rate is above the company rate you pay the difference. If it is below, the excess credit is refunded to you in cash. A shareholder on the 30% bracket receiving a dividend franked at 30% pays roughly nothing extra, ignoring the Medicare levy.
No, they increase it. The credit is added to your income first, which is what grossing up means, and then it comes off your tax as an offset. Treating it as a deduction is the most common mistake and it understates the income by the amount of the credit.
There is no separate franking rate. Dividends are franked at the paying company's own tax rate for the year: 25% for a base rate entity, 30% for every other company. A company that changes rate between years franks at the rate that applies in the year the dividend is paid.
You can declare an unfranked dividend, which is taxed in full in the shareholder's hands with no offset. Franking beyond the account balance creates a franking deficit and franking deficit tax. The calculator shows the maximum cash dividend your balance can fully frank so you can size it properly.
For individuals and complying superannuation funds, yes. Excess credits are paid out in cash. For companies the offset is not refundable; the excess converts to a tax loss and the company's own franking account is credited instead.
General information only, prepared without regard to your objectives, financial situation or needs. It is not financial product or taxation advice and should not be relied on as such. Liability limited by a scheme approved under Professional Standards Legislation.
