Tax-effective income

Ever heard the term ‘franking credit’? If you’re like most people you’ve heard the term but have no idea what it means.

A franking credit is a ‘tax credit’ provided to investors by some Australian companies when they pay a dividend.

The tax credit is equal to the amount of tax the company has already paid on the dividend before distributing it to the investor. Companies generally pay 30% tax.

Once investors receive a dividend they too have to pay tax on it. But they can use the franking credit provided by the company to offset some or all of their tax.

In effect, if an investor has a tax rate of 30%, they will pay no tax on the dividend as the franking credit is also equivalent to 30%. If the investor has a tax rate of 38%, they will pay 8% tax on the dividend and so on.

Therefore, franking credits effectively increase the after tax return of dividends for investors.

Franking credits are unique to Australian shares, no other asset class provides such favourable tax treatment on income for investors.

To find out more about franking credits and how they affect you, contact Financial Planning Expert on 03 9708 8126.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.