What is the effect of receiving a franked distribution?

All entities (excluding partnerships and trusts) that are members of a corporate tax entity, and are in receipt of a franked distribution will:

  • include the distribution together with the franking credits allocated to the distribution in their assessable income, and
  • obtain a tax offset equal to the amount of franking credits included in their assessable income. This tax offset can be used to reduce the entities' own income tax liabilities.

Members of a corporate tax entity include shareholders in a company, partners in a corporate limited partnership or beneficiaries of a corporate unit trust or public trading trust.

The process outlined above is commonly referred to as the 'gross-up and credit' approach and for an entity that is a company, it will replace the intercorporate dividend rebate for franked dividends.

A franked distribution to certain partnerships and trusts is treated as flowing indirectly to members of the partnership or trust. Each member's share of the franking credit on the distribution is included in their assessable income. Each member is then given a tax offset equal to that share of the franking credit, provided the member is not itself a partnership or trust through which the distribution flows indirectly.

Where the trustee, rather than a member, is the taxpayer in respect of a share of the distribution, it is the trustee in that capacity who is given the tax offset for the share of the franking credit.

Certain eligible members may be entitled to a refund if the tax offset allowed exceeds the members' basic income tax liability.

If the member is a corporate tax entity it can pass on the benefit of having received a franking credit on the distribution to its own members by franking distributions made to its members.

Non-resident members that are in receipt of franked distributions are not subject to any further income tax liability on the distribution, nor are they subject to the withholding tax provisions in the income tax law.

Example 5: Effect of receiving a franked distribution (gross-up and credit approach)
On 31 August 2002, Savcor Pty Ltd received a franked distribution of $7,000 with franking credits of $3,000 allocated to it. Its other assessable income included net trading profits of $5,000. Savcor Pty Ltd's taxable income is therefore $15,000 and its income tax liability is calculated as follows:


Gross tax on $15,000 @ 30%




Franking credit




Net tax payable



For more information on the effects of receiving a franked distribution, refer to Simplified imputation: the tax effect of receiving a franked distribution.

    Last modified: 28 Jul 2016QC 16618