How do I claim franking credits on my tax return in Australia?
You claim franking credits on your Australian tax return by reporting all franked dividends and including the franking credit amount in your assessable income. This credit then reduces your tax payable, and you may receive a refund if your tax liability is less than the credits.
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How it works in practice
Understanding Franking Credits
Franking credits, also known as imputation credits, represent the tax a company has already paid on the profits distributed to its shareholders as dividends. When you receive a franked dividend, the company issues a statement showing both the dividend amount and the attached franking credit. This system prevents double taxation of company profits – once at the company level and again at the shareholder level.
How They Reduce Your Tax
To claim franking credits, you must include both the dividend amount and the attached franking credit in your assessable income for the financial year. The franking credit is then applied against your total tax liability. If the franking credits exceed your tax payable, the Australian Taxation Office (ATO) will typically refund the difference to you, provided you meet eligibility criteria. This makes franked dividends a valuable component of investment income for many Australian taxpayers.
Important exceptions
Not everyone can fully utilise or receive a refund for franking credits. For example, non-residents of Australia generally cannot claim franking credits unless they are entitled to an income tax deduction. Furthermore, the '30% franking credit rule' or 'franking credit trading rules' can restrict the ability of some entities or individuals to benefit from franking credits if certain conditions are not met, such as holding shares for less than 45 days. Certain types of income or entities, like some superannuation funds, may also have specific rules governing their eligibility to claim refunds.
What you should do now
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Collect all dividend statements from companies or managed funds you hold, ensuring they specify franked amounts and franking credits.
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Accurately report the total franked dividend amount and the attached franking credits as part of your assessable income in your tax return.
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Ensure your tax return correctly includes the franking credits in the relevant sections (e.g., 'Share dividends' or 'Managed fund distributions').
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Review your tax assessment to confirm the franking credits have been applied, reducing your overall tax payable or generating a refund.
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Keep all dividend statements and related records for at least five years as proof of your entitlement in case the ATO requests verification.
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