What does 'grossing up' a dividend mean?

Grossing up means adding the franking credit back onto the cash dividend to get the pre-tax amount the company actually earned. A $700 fully franked dividend carries $300 of franking credits, so you declare $1,000 of income, then claim the $300 credit. It reverses the company tax so it can be applied at your rate instead.

Can I get a refund of franking credits?

Yes. In Australia, franking credits are fully refundable to individuals. If your franking credits are more than the tax you owe — common for retirees and low-income shareholders — the excess is paid to you as a cash refund. This is unusual internationally and a key feature of the Australian imputation system.

What is the difference between franked and unfranked dividends?

A franked dividend is paid from profits the company has already paid Australian tax on, so it carries franking credits. An unfranked dividend has no company tax paid against it and carries no credits, so you simply pay your marginal rate on it with nothing to offset. Many dividends are partly franked.

Do dividends pre-fill in my tax return?

Yes. Share registries and your broker report your dividends and franking credits to the ATO, and they pre-fill into your return, generally from late July. Always check the figures against your dividend statements, especially if you hold shares across multiple registries or use a dividend reinvestment plan.

Are reinvested dividends (DRP) still taxable?

Yes. If you take part in a dividend reinvestment plan, you receive shares instead of cash, but for tax it is treated as if you received the dividend and used it to buy shares. You declare the dividend and any franking credit as normal, and the reinvested amount also forms the cost base of the new shares for future capital gains tax.

How do franking credits affect my refund?

Franking credits are a tax offset, so they directly reduce the tax you owe dollar for dollar, and any excess is refunded. For someone on a low marginal rate, fully franked dividends can mean little or no extra tax — and sometimes a refund — because the 30% company tax already paid is more than their own rate.

Dividends & Franking Credits Explained (Australia 2025-26)

Q: How are dividends taxed in Australia?

Dividends are assessable income, added to your other income and taxed at your marginal rate. For franked dividends you also include the attached franking credit in your income (grossing up), then receive that credit back as a tax offset, so the company tax already paid is not taxed twice.

Q: What is a franking credit?

A franking credit (also called an imputation credit) represents company tax already paid on the profits used to pay your dividend. Because the company paid 30% tax, you get a credit for that tax. You declare the grossed-up dividend as income and then subtract the franking credit from your tax bill.

Franking credits are one of the most valuable — and most confusing — parts of Australian tax. They exist so company profits are not taxed twice. Here is how dividends and franking credits work for 2025-26, in plain English, with a worked example.

Quick answer

Dividends are taxed at your marginal rate. For franked dividends you add the franking credit to your income (“grossing up”), then claim that same credit back as a tax offset — so the 30% company tax already paid is not taxed again. In Australia, excess franking credits are refundable as cash.

How are dividends taxed in Australia?

When you own shares, the company can pay you part of its profit as a dividend. That dividend is assessable income: it is added to your salary, interest and other income, and the total is taxed at your marginal rate. So far, just like interest.

The twist is that the company has often already paid tax on those profits — the company tax rate is 30% (or 25% for some smaller companies). Without a fix, the same profit would be taxed twice: once in the company, and again in your hands. Australia's dividend imputation system solves this with franking credits.

What is a franking credit?

A franking credit (or imputation credit) is your share of the company tax already paid on the profit behind your dividend. The idea is simple: you get credit for tax the company paid on your behalf, and that profit is ultimately taxed only at your rate, not the company's plus yours.

Fully franked: the company paid the full 30% tax — maximum franking credits attached.
Partly franked: only some company tax was paid — partial credits.
Unfranked: no company tax paid against it — no credits, so you simply pay your marginal rate.

Grossing up: the step that confuses everyone

To make the credit work, you first add it back onto the cash dividend. This is called grossing up, and it rebuilds the pre-tax profit the company earned. Then you claim the credit against your tax. Here is a fully franked example:

Step	Amount
Cash dividend you receive	$700
Franking credit attached (company tax already paid)	$300
Grossed-up dividend you declare as income	$1,000
Tax on $1,000 at, say, a 30% marginal rate	$300
Less: franking credit offset	−$300
Extra tax actually payable	$0

In this case the company already paid exactly the tax you would owe, so there is nothing more to pay. The $300 credit cancels the $300 of tax.

Refunds of excess franking credits

Here is what makes Australia unusual: franking credits are fully refundable to individuals. If your credits are more than the tax you owe, the ATO pays you the difference in cash.

Take the same $1,000 grossed-up dividend, but for someone on a 16% marginal rate. Their tax on $1,000 is only $160, but the dividend carries a $300 credit — so they get the $140 difference back as a refund. This is why fully franked dividends are prized by retirees and low-income shareholders: the 30% already paid can exceed their own rate.

Dividend reinvestment plans (DRP)

If you reinvest dividends to buy more shares through a DRP, the tax treatment does not change: you are taxed as though you received the cash dividend (with its franking credit) and then bought shares with it. You declare the dividend as normal, and the reinvested amount becomes part of the cost base of the new shares for future capital gains tax. Keep your DRP statements — they matter when you eventually sell.

Where dividends go in your return

Share registries and brokers report your dividends and franking credits to the ATO, so they pre-fill in your return, usually from late July. Check them against your dividend statements before lodging, particularly if you hold shares across several registries or use a DRP, where figures occasionally land late or in pieces.

Frequently asked questions

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This guide is general information only and not personal tax advice. Always confirm with the ATO at ato.gov.au or a registered tax agent before lodging.

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