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How franking credits work
When a company pays tax on its profits and then pays a dividend, it attaches a franking credit for the tax it already paid. You add the credit to the cash you received, which is called grossing up, and that total goes into your taxable income. Then the credit comes off the tax you owe.
Take a $70 fully franked dividend from a company paying 30% tax. The credit is $70 × 30 ÷ 70 = $30, so $100 goes into your income. At 32% including the Medicare levy the tax on that is $32, and after the $30 credit you pay $2. On a 0% rate you'd get the $30 back instead.
Partly franked dividends
Only the franked part of a dividend carries a credit. A $100 dividend that's 60% franked at 30% has $60 franked, for a credit of $25.71, and the other $40 is taxed like ordinary income with nothing to offset it. Put the franked percentage in and the calculator does the split.
Questions
Do I get money back if my tax rate is under 30%?
Yes. Individuals and super funds get any credit left over after their tax refunded when they lodge, so someone under the tax-free threshold gets the whole credit back. Companies don't get refunds, and carry the excess forward as a loss instead.
What is the 45-day rule?
To claim the credit you need to have held the shares for at least 45 days around the ex date, not counting the days you bought and sold, or 90 days for preference shares. The rule doesn't apply if your franking credits for the whole year come to less than $5,000.
Why would a company frank at 25%?
Base rate entities, which are companies with turnover under $50 million that mostly earn active income, pay 25% tax and frank their dividends at that rate. Most large ASX companies pay 30%.
What if my statement shows a different credit?
Go with the statement. It's what the share registry reports, and what the ATO uses to pre-fill your return. Small differences usually come down to rounding.
Is this tax advice?
No. It works out the numbers for one dividend at a rate you pick. Your actual tax depends on the rest of your income, offsets and deductions, so check anything important with your accountant or tax agent.