Dividend Franking Credit Calculators

Franking Credit Formulae

The formulae for calculating franking credits (as used in the above calculators) are as follows:

To Determine A Franking Credit

To determine a franking credit amount, the known formula variables are:

• company tax rate of the paying entity (e.g. T= 30%)
• the amount of the dividend paid (e.g. D= $10,000)
• the percentage of franking (e.g. P = 50%)

The unknown variable is the franking credit (F).

The franking credit formula is: F = D x [T ÷ (1 – T)] x P

In this example, F = 10,000 x [0.30 ÷ (1 – 0.30)] x 0.50 which equals $2,142.85

This example calculation shows that a dividend of $10,000 paid by a company with an imputation tax rate of 30% and franked to 50% would have a franking credit of $2,142.86.

To Determine a Dividend Amount

For a company wanting to know what dividend it should pay in order to distribute a specific amount of franking credits to its shareholders, the known formula variables are:

• company tax rate of the paying entity (e.g. T= 30%)
• percentage of franking (e.g. P = 100%)
• amount of franking credits (e.g. F = $3,500)

The unknown variable is the amount of dividend (D).

The formula to calculate the dividend is D = [F x (1 – T)] ÷ P×T

In this example D =[3500 x (1 – 0.30)] ÷ 1 x 0.30 which equals $8166.67

​This example calculation shows that a company with an imputation tax rate of 30% wanting to use tax credits of $3,500 would pay a dividend of $8,166.67 if franked to 100%.

Franking Credit Rules: 45 Day Holding Rule

Even though you may have received a dividend notice showing an entitlement to franking credits, you may not (subject to the small shareholder exemption) claim the credits if you haven’t met the 45 Day Holding Rule.

The 45-day holding rule requires shareholder investors to hold their shares “at risk” for at least 45 days (or 90 days in the case of certain preference shares) in order to be able to claim the franking tax offset, which came into effect 1 July 1997.

The holding period does not include the day of acquisition or disposal.

Small Shareholder Exemption

The holding period rule doesn’t apply to smaller shareholder individuals whose total franking credits within a tax year are less than $5,000. The exemption is only available to individual taxpayers.

The Related Payments Rule and Dividend Washing

The related payments and dividend washing rules are anti tax avoidance measures.

They are designed to deny a taxpayer’s franking credit tax offset when the franking benefit is passed to someone else, or where dividend washing has been carried out.

Dividend washing is where shares are sold ex dividend and replaced on market cum dividend thereby gaining an entitlement to two franking credits. In this case the second franking credit tax offset is denied.

Details of these integrity measures and how they are applied are set out by the Tax Office here.

Franking credit tax offsets are refundable, which means that (unlike most other tax offsets), if the tax offset exceeds the amount of tax payable, the difference can be refunded. How this works and links to the tax forms are set out here.

See also:

Preventing Dividend Washing: Tax And Superannuation Laws Amendment (2014 Measures No. #) Bill 2014 Explanatory Materials

Example Dividend Notice Explained

You can check the numbers on a dividend advice notice using the first calculator “SOLVE FOR FRANKING CREDIT AMOUNT” above.

Here’s how, using an example dividend notice.

The dividend notice contains unfranked ($200) and franked ($700) amounts plus a franking credit $300).

For an individual investor, the total of these items ($1,200) is all included in taxable income, with $300 claimable as a franking credit tax offset (assuming all eligibility conditions are met).

The franking percentage is not required to be entered in your tax return, but as matter of interest can be calculated as the ratio of franked dividend ($700) to the total ($700+$200 = $900): $700 ÷ $900 = 77.78%.

The company tax rate is not usually stated on the dividend notice, as it is not required by law, and is not required to be entered in your tax return. Most public companies are using an imputation tax rate of 30% because they are not base rate entities, and this can normally be assumed. If the dividend source is a base rate company, the tax rate is more likely to be 25%.