Receiving a distribution directly

Where an Australian-resident member of a corporate entity receives a franked distribution directly, they include both the distribution and any franking credit in their assessable income. The member is then entitled to a tax offset equal to the franking credit.

This is called the ‘gross-up and credit’ approach. It applies to most members who receive franked distributions directly, including:

  • individuals
  • corporate tax entities
  • eligible superannuation funds, approved deposit funds and pooled superannuation trusts.

Individuals and superannuation funds are eligible for a refund if the franking credits allocated to distributions they receive exceed their tax liability. Charities and deductible gift recipients that are exempt from income tax are also entitled to a refund of franking credits attached to their distributions.

For corporate entities such as companies, the franking credit is not refundable. It can reduce the entity’s tax liability to nil, but is not refunded if it exceeds the tax liability. However, the entity may convert any excess franking offsets to a tax loss which may be carried forward to future years.

If the franked distribution or share of a franked distribution is exempt income, the recipient is generally not entitled to a tax offset. In this case, the distribution is not grossed-up.

Example: Individual shareholder

On 11 December 2014, Rodney receives a franked distribution of $700 with $300 franking credits attached. When Rodney does his tax return for the 2015 income year, he includes $1,000 ($700 franked distribution plus $300 franking credits) in his assessable income and is entitled to a tax offset of $300 to reduce his income tax liability.

Taking into account his assessable income and allowable deductions from all sources, Rodney’s basic income tax liability is $200. As his tax offset exceeds his basic income tax liability, he is entitled to a refund of the excess – that is, $100.

End of example

An individual’s marginal rate of tax varies according to their taxable income so the tax payable on a grossed-up distribution may exceed the franking credit attached to a distribution. In this case they will have an additional tax liability on the distribution.


Example: How imputation works where the shareholder is on the top personal tax rate


Unfranked distribution

Fully franked distribution


Income earned
Company tax (30%)
Net profit after tax



Individual shareholder

Dividend paid
Franking credit

Taxable income
Tax on taxable income (47%*)
Credit for company tax
Tax payable





Net distribution to shareholder

Total tax paid by company and





*Includes Medicare levy, but excludes the temporary budget repair levy


End of example

However, a corporate tax entity receiving a distribution doesn't pay additional tax because the corporate tax rate (30%) results in the same taxable amount as the credit attached to a fully franked distribution. The income has already been fully taxed at the level of the corporate tax entity making the distribution.

A corporate tax entity that receives a distribution also receives a credit to its franking account. This credit can be passed on (imputed) to its members through a distribution.

Example: Shareholder that is a company

On 15 August 2015, Edwards Pty Ltd receives a franked distribution of $700 with $300 franking credits attached.

Edwards Pty Ltd includes $1,000 ($700 franked distribution plus $300 franking credits) in its assessable income and is entitled to a $300 tax offset to reduce its income tax liability.

In addition, on 15 August 2015 Edwards Pty Ltd generates a franking credit of $300 in its franking account.

End of example

See also:

Last modified: 11 Nov 2015QC 47311