Franking Credits Refund Rules Explained (Australia 2025-26)

General information only. Speak with a registered tax agent for advice.

Franking credits are often described as “getting company tax back”, but the actual rule is narrower than that.

The ATO position is that when you receive a franked dividend, you include the grossed-up dividend in your assessable income and then claim the attached franking credit as a tax offset. If the offset is larger than your final tax liability, you may receive a refund of the excess.

Why franking credits exist

Australian company profits can be taxed twice without an imputation system:

• once when the company pays company tax
• again when the shareholder receives a dividend

Franking credits reduce that double-tax effect by giving shareholders credit for company tax already paid.

When do you actually get a refund?

You do not automatically get a cash refund every time you receive a franked dividend.

The refund question depends on your final tax position after including:

• the grossed-up dividend in assessable income
• the franking credit tax offset
• your other income, deductions, offsets, and levy outcomes

If the franking credits exceed the tax you owe for the year, the excess can be refunded.

That is why refunds are more common for:

• lower-income investors
• retirees with low taxable income
• people whose deductions and offsets reduce their final tax bill below the franking credit amount

When franking credits only reduce tax

If your marginal tax outcome is still higher than the franking credit attached to the dividend, the credits reduce your tax bill but do not create a refund.

In practical terms:

• lower-tax investors may get some or all of the franking credit back
• higher-tax investors often use the credit to reduce top-up tax rather than produce a refund

The 45-day rule still matters

The ATO says many investors must satisfy the holding period rule to claim franking credits.

Broadly, if your total franking credit entitlement is more than $5,000 for the income year, you generally need to hold ordinary shares at risk for at least 45 days, not counting the purchase and sale days. Preference shares have a 90-day rule.

This is one of the main traps in dividend-focused strategies. A dividend statement can show franking credits, but the credits may still be denied if the holding rule is not satisfied.

Small shareholder exemption

The ATO small shareholder exemption can switch the analysis.

If your total franking credit entitlement for the year is $5,000 or less, you may not need to satisfy the 45-day rule. That is why some smaller investors can still claim their credits even when they have not held the shares long enough for the standard rule.

Why the calculator result can differ from the final return

A franking credit calculator is useful for the core tax mechanics, but your actual return can still move because of:

• other taxable income
• capital gains or capital losses
• Medicare levy and other offsets
• whether the holding period rule was satisfied
• whether the dividend was fully or only partly franked

Practical checklist

• Check whether the dividend was fully franked, partly franked, or unfranked
• Include the grossed-up dividend, not just the cash received
• Check whether your total franking credits exceed the $5,000 small shareholder threshold
• Review whether the 45-day rule applies to your holding
• Run the dividend through your wider annual tax position, not in isolation

Sources (verified)

• ATO: You and your shares 2025
• ATO: Refund of franking credits instructions
• ATO: QC 17331 Appendix 4 holding period and related payments rules

Run this before you count on a refund

If the risk is “the dividend statement shows franking credits, so I must be getting cash back”, test the tax position instead of assuming the credit becomes a refund.

• Use the Franking Credits Calculator to estimate whether the credits reduce tax or push you into a refund position.
• Use the Company Tax Calculator if you also need to understand how company tax paid turns into frankable profits and dividend capacity.