Franking Credits: Claims and Refunds in 2026

Franking credits recognise company tax attached to a franked dividend. An eligible recipient includes the credit in assessable income and claims a matching tax offset. Your client’s entitlement depends on their ownership and tax circumstances, even when the credit appears in pre-fill.

What Franking Credits Mean

A franking credit is the company tax allocated to a franked distribution under Australia’s dividend imputation system. The cash dividend is what the shareholder receives or reinvests. The credit records tax already paid by the company.

For an eligible Australian resident shareholder, the cash dividend and attached credit form the grossed-up assessable amount. The offset then reduces the shareholder’s income tax. This recognises the company tax when taxing the underlying profit in the shareholder’s hands, as the Parliamentary Budget Office’s imputation explanation describes.

Franking credits therefore increase assessable income when the gross-up rules apply. They do not reduce taxable income as a deduction. An excess offset can produce a refund for an eligible individual, but company recipients have different rules.

Read the Dividend Statement

Read the statement’s franked cash, unfranked cash and attached credit separately before entering the return. Confirm the shareholder, ownership share and payment or crediting year against investment records. Include reinvested dividends in the reconciliation even though they produce no bank deposit.

A Hypothetical Dividend Statement

Assume an Australian resident individual owns the entire holding and meets the entitlement rules. Their fictional statement supplies the following figures.

Statement or return component	Amount	Treatment
Franked cash dividend	$700	Include as dividend income
Unfranked cash dividend	$100	Include separately as dividend income
Attached franking credit	$300	Include in assessable income and claim the eligible offset
Total assessable amount from this statement	$1,100	Includes the $800 cash and $300 credit

The $300 credit is not another cash payment. Claiming it as a deduction would incorrectly reduce income instead of applying the offset. Use the franking credit calculator when you need credit and gross-up arithmetic from dividend inputs. The dividend tax calculator addresses the effect on an individual’s tax estimate.

“Total franking credits” can mean the sum on one statement or the combined credits across investments for the income year. Keep those reported totals separate from the eligible claim. Remove duplicate statements and allocate jointly owned amounts before checking entitlement.

A common incorrect treatment is copying every prefilled credit into the claim. The correct treatment reconciles each amount to the final statement and records any exclusion required by the entitlement rules.

Check the Holding Period

The holding period rule generally requires shares to be held continuously at risk for at least 45 days, or 90 days for certain preference shares. Count qualifying days within the applicable qualification period and exclude acquisition and disposal days. Hedges and other arrangements that remove the economic risk can prevent days from counting.

For individuals, the small-shareholder exception applies where total franking credit entitlements from all sources are less than $5,000 for the income year. It does not remove the related-payment test. At $5,000 or more, the holding period rule applies. Reducing the claim below the threshold does not create an exception.

The ATO’s share-investment guidance explains these integrity rules. A related payment passes the dividend benefit to someone else. Where that rule applies, assess each distribution within its secondary qualification period. This runs from 45 days before to 45 days after the ex-dividend day, or 90 days either side for preference shares. The ordinary once-per-purchase holding check does not settle that separate test.

Obtain contract notes, parcel histories and ex-dividend details. Ask about options, hedges, securities lending and arrangements to pass on the benefit. Match these to the particular dividend. A statement shows the issuer’s credit, while these records establish whether your client can use it.

Claim Credits or Request a Refund

Claim eligible credits through the income-tax return when your client must lodge one. Excess refundable credits arise when eligible credits exceed the tax they offset. Retirement alone does not establish either entitlement or eligibility for a separate application.

For individuals who do not need to lodge, use the ATO’s refund application and instructions. The separate application requires full-year Australian tax residency and excludes deceased-estate claims. Its dividend-income and age conditions also apply. A client who fails its conditions needs the return route to claim eligible credits.

Work through the claim in this order.

1. Establish the income year, recipient and return-lodgment requirement. Confirm whether a return, separate application or existing automatic assessment is relevant.
2. Reconcile final dividend and distribution statements. Record franked and unfranked amounts, eligible credits and any tax withheld as separate totals.
3. Resolve holding-period and other entitlement issues. Keep a reason for each difference between the statement total and claimed credits.
4. Complete the appropriate return fields or relevant-year application. Follow that year’s instructions for rounding and managed-fund amounts.
5. Compare the submitted totals with your workpaper and retain the lodgment receipt. When the assessment arrives, reconcile its income and offset treatment to the claim.

The ATO also automatically refunds credits to eligible individuals using reported investment information. Its eligibility criteria exclude tax-agent clients. Do not assume that an older client’s prior automatic refund replaces the claim you are preparing. Check their ATO correspondence and assessment before lodging a duplicate.

Prior-Year Applications

A claim for 2025 uses the 2025 application for refund of franking credits for individuals and its matching instructions. A refund of franking credits for 2018 uses the ATO’s 2018 instructions and application. Identify the actual income year before choosing either form.

The current ATO instructions allow prior-year applications online or by post, with phone lodgment restricted to the current claim year. Use the current prior-year route instead of an old publication’s phone directions. If that year already has an assessment, determine whether an amendment is needed instead of making a second original claim.

Retain the final statements, ownership reconciliation, entitlement analysis and submitted return or application. Keep the receipt and assessment with the file. Separate dividend tax withheld from franking credits so the same amount cannot enter both categories.

Company Franking Accounts

A company’s dividend-income claim, franking account and dividends paid to shareholders are separate parts of its tax file. Receiving an eligible franked dividend can produce both a tax offset and a franking-account credit. Paying a franked dividend uses credits in that account.

Excess franking offsets are generally not refundable to companies. The company rules can convert excess offsets into a tax loss, subject to the applicable loss rules. A surplus franking-account balance itself is not a cash-refund entitlement.

Franking Account Events

The Income Tax Assessment Act’s franking-account rules determine each entry and its timing.

Event	Account effect	Evidence to reconcile
Qualifying income-tax or PAYG instalment payment	Credit when the statutory payment event occurs	ATO account and payment record
Eligible franked distribution received	Credit for the attached credit	Distribution statement and entitlement review
Relevant income-tax refund received	Debit	ATO refund transaction
Franked distribution made	Debit for the allocated credit	Dividend resolution and statement

An accounting provision for income tax does not establish a payment credit. Check special timing rules where an instalment is paid early. Reconcile the closing balance and assess any franking deficit tax obligation before completing the company’s reporting.

Base Rate Entity Imputation Rate

Establish the company’s corporate tax rate for imputation purposes before allocating credits. Its current income-tax rate alone does not determine that rate.

The statutory imputation-rate definition generally uses prior-year aggregated turnover, assessable income and base rate entity passive income. It has a separate rule where the entity did not exist in the previous year.

Keep the prior return, turnover calculations and passive-income analysis with the dividend workpaper. Document the resulting rate and maximum credit before issuing the statement. Include the account reconciliation in your wider company tax compliance review.

Trust and ETF Distributions

Trust and exchange-traded fund (ETF) statements identify credits passed through to recipients alongside the relevant income components. A fund’s cash payment alone does not establish either the assessable amount or its franking credits.

An attribution managed investment trust member annual (AMMA) statement separates attributed income from cash distributions. Follow its component labels and retain cost-base adjustments separately. The Vanguard AMMA statement guide distinguishes franked distributions from the share of franking credits.

A client asking whether VAS has franking credits needs their final fund tax statement. Use Vanguard and VAS to identify the investment and statement required. Do not apply a remembered franking percentage to the cash distribution or assume every ETF distribution carries credits.

For a discretionary trust, a valid family trust election can affect access to franking-credit concessions. Review the trustee’s and beneficiary’s entitlement, including the election’s application, instead of treating the statement as proof. The ATO’s family-trust guidance explains the concessions and family-group restrictions. Use the family trust election guide for the election decision and procedure.

Superannuation funds claim according to the fund’s tax position and entitlement rules. Industry-super-fund investments belong to the fund, so members do not enter its underlying franking credits in their personal returns. Keep an individual’s directly held investments separate from their superannuation balance.

Check Reform Claims Before Reporting

A reform announcement changes your client’s reporting only when an enacted measure applies to their income year and circumstances. A proposal to abolish refunds does not itself remove an existing entitlement.

The 2026 Budget’s discretionary-trust measure concerns a minimum tax on affected trust income. Treasury’s announcement of the introduced tax-reform bills identifies the measures and proposed application details. It does not describe a general abolition of franking credits.

Treasury’s exposure-draft explanation also describes refunds of excess franking credits after the trustee offsets its income-tax liabilities. Distinguish those credits from the proposed beneficiary credit for minimum trust tax. Their refund treatment cannot be assumed to match.

Before changing a trust or beneficiary claim, identify the enacted provision, its commencement and the income to which it applies. Record the affected trust type and recipient. Keep a proposal’s future treatment out of a return for an earlier income year.