Fully Franked Dividend
A dividend where the company has paid the full company tax rate on the underlying profits, with maximum franking credits attached.
A fully franked dividend is one where the company has paid company tax on the full amount of the profits being distributed, and the maximum franking credits are attached to the dividend. For a company paying the 30% tax rate, a fully franked dividend of $70 carries $30 in franking credits (representing the $30 of company tax paid on the $100 of pre-tax profit).
Most large Australian companies (banks, miners, telcos, retailers) pay fully franked dividends because they generate most of their profits in Australia and pay Australian company tax. This makes Australian shares particularly attractive for local investors compared to foreign shares, which carry no franking credits. The franking credit benefit is most pronounced for low-income earners and super funds, who may receive net refunds of excess credits.
When comparing investment returns between franked and unfranked (or foreign) dividends, you should consider the grossed-up yield. For example, a 4% dividend yield that is fully franked at the 30% company tax rate has a grossed-up yield of 5.71% (4% ÷ 0.7). The grossed-up yield represents the true pre-tax return on the company's earnings, and is a fairer comparison with other income sources like interest.
How it works
A fully franked dividend is one where the paying company has already paid company tax on the entire underlying profit, so the maximum available franking credit is attached. For a company taxed at 30%, the credit attached to a fully franked dividend equals 30/70 of the cash amount you receive — the exact company tax already paid on the pre-tax profit that funded it. Nothing further is owed to the tax office on that same profit beyond your own top-up tax, if any, at your marginal rate.
On your dividend or annual tax statement, a fully franked holding will show 100% franked with the dollar credit amount stated. Because this credit reduces the effective tax you personally pay, investors often compare dividends using the grossed-up yield rather than the raw cash yield, since the grossed-up figure reflects the true pre-tax return and allows a fair comparison against unfranked income sources like bank interest.
Most large Australian companies — banks, miners, telcos, and major retailers — pay fully franked dividends because the bulk of their profits are earned and taxed in Australia, which is a large part of why Australian shares are popular with local investors compared with foreign shares that carry no franking credits at all. The franking benefit is strongest for investors on low marginal tax rates, including retirees and superannuation funds in pension phase, who can receive the unused portion of the credit back as a cash refund.
Example: grossed-up yield on a fully franked share
A share pays a fully franked cash dividend yield of 5%, from a company taxed at the 30% company tax rate.
The grossed-up yield is the cash yield divided by (1 − 0.30), which is 5% ÷ 0.7 = 7.14%. That 7.14% is the true pre-tax return, useful for comparing against an unfranked yield or a term deposit rate on a like-for-like basis.
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Franking Credits (Imputation Credits)
Tax credits attached to dividends representing company tax already paid on the profits, preventing double taxation.
Unfranked Dividend
A dividend paid from profits on which no Australian company tax has been paid, so no franking credits are attached.
Partially Franked Dividend
A dividend where only part of the underlying profits have been taxed in Australia, so only partial franking credits are attached.
Company Tax Rate
The flat rate of tax applied to company profits — 25% for base rate entities (turnover under $50 million) and 30% for others.
Dividend Reinvestment Plan (DRP)
A plan that automatically reinvests your dividends or distributions into additional shares or units instead of paying cash.