However, an added benefit is choosing stocks that pay dividends. These provide funds that can finance future investment decisions<\/a> or simply act as a way to earn a This guide will help you to understand the role of franking credits<\/strong>, how to calculate them, and what they mean for your tax obligations.<\/p>\n\n\n\n Franking credits were created for the purpose of eliminating the double taxation problem that can occur when Tip: <\/strong>Franking credits help you to get the earnings from dividends without paying income tax<\/a> on top of what the company has already paid in corporate tax.<\/p>\n<\/div><\/div>\n\n\n\n In basic terms, when a listed company disburses dividends to its shareholders<\/a> \u2014 typically twice every year, though it may be more or less frequent depending on the stock \u2014 the company pays these dividends out of its profits<\/strong>.<\/p>\n\n\n\n These profits may have already been subject to the Australian company tax rate<\/strong>, which is currently 30%.<\/p>\n\n\n\n So, to avoid Franking credits recognise the tax paid by a company<\/strong>. Therefore, investors do not have to pay additional tax on dividends, except if their marginal tax rate is higher than the corporate tax rate paid on the dividends.<\/p>\n\n\n\n There are three different types of dividend payments:<\/p>\n\n\n\n A fully franked dividend means that the company has already paid the 30% tax<\/strong>, a partially franked dividend means that a portion of the tax has already been paid<\/strong>, and an unfranked dividend means that the full tax obligations fall to the shareholder<\/strong>.<\/p>\n\n\n\n All franked dividends come with franking credits attached to them. Depending on the amount of corporate tax that has already been paid, shareholders<\/strong><\/a> are entitled to receive a tax credit<\/strong>.<\/mark><\/p>\n\n\n\n So, if an investor\u2019s top tax rate is lower than the company\u2019s tax rate <\/strong>(i.e., 30% for a fully franked dividend), the Australian Tax Office refunds the difference.<\/p>\n\n\n\n Shareholders can calculate franking credits by using a simple equation. The simplicity of the maths adds to the popularity of this strategy, and <\/strong>shareholders will receive a detailed statement alongside their franked dividends.<\/mark><\/p>\n\n\n\n This will outline how much you are receiving from the dividend, the franked credit and the tax rate<\/strong>. So, you won\u2019t need to use a franking credit calculator or maths to figure out how much you will need to pay in tax.<\/p>\n\n\n\n It is actually quite simple to calculate <\/strong>franking credits<\/a>, and we\u2019ll take you through the steps below.<\/p>\n\n\n\n We will use the example of a corporation paying out $3,000 to a shareholder who is currently holding a sizeable portion of shares. Because the company has already paid 30% corporate tax <\/strong>on the profits they are distributing, those dividends are \u201cfully franked\u201d.<\/p>\n\n\n\n So, the credit will be calculated by using the following franking credit formula:<\/strong><\/p>\n\n\n\n (Dividend amount \/ (1 – Company tax rate)) – Dividend amount = Franking credit<\/strong><\/p>\n\n\n\n OR<\/p>\n\n\n\n ($3,000 \/ (1 – 0.30)) – $3,000 = $1,285.71<\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/www.etoro.com\/wp-content\/uploads\/2023\/03\/Franking-credits_what-are-they-and-how-do-they-work_Body-Image-1_-What-are-franking-credits_.png\")
<\/figure>\n\n\n\nWhat are franking credits?<\/h2>\n\n\n\n
How do franking credits work?<\/h2>\n\n\n\n
![\"\"](\"https:\/\/www.etoro.com\/wp-content\/uploads\/2023\/03\/Franking-credits_what-are-they-and-how-do-they-work_Body-Image-2_-How-to-calculate-franking-credits.png\")
<\/figure>\n\n\n\n\n
How to calculate franking credits<\/h2>\n\n\n\n
![\"\"](\"https:\/\/www.etoro.com\/wp-content\/uploads\/2025\/05\/FR82F5_1.png\")
<\/figure>\n\n\n\nAn example of a franking credit calculation<\/h3>\n\n\n\n