Refunding franking credits - individuals

Dividends paid to shareholders by Australian resident companies are taxed under a system known as ‘imputation’. It is called an imputation system because the tax the company pays is imputed, or attributed, to the shareholders. The tax paid by the company is allocated to shareholders by way of franking credits attached to the dividends they receive.

You include an amount equal to the franking credit attached to your dividend in your assessable income. You are also entitled to a franking tax offset equal to the amounts included in your income (there are some exceptions to this rule, see What are the anti-avoidance rules?).

The franking tax offset will cover, or partly cover, the tax payable on the dividends. If the tax offset is more than the tax payable on the dividends, the excess tax offset will be applied to cover, or partly cover, any tax payable on other taxable income received.

If any excess tax offset amount is left over after that, the Tax Office will refund that amount to you.

When is an individual eligible for the refund?

Subject to satisfying certain anti-avoidance rules, resident individuals are eligible for a refund of excess franking credits if:

• they receive franked dividends, either directly or through a trust or partnership, and
• their basic tax liability is less than their franking credits after taking into account any other tax offsets to which they are entitled.

Last Modified: Tuesday, 30 June 2009