Franking credits, explained simply (no, you're not taxed twice)

Franking credits sound complicated, but the idea behind them is fair and simple. When an Australian company makes a profit, it pays company tax on it. When it then pays you a dividend out of that already-taxed profit, the government doesn't want to tax the same dollar twice. A franking credit is a note that says 'tax has already been paid on this'.

How it lands in your tax return

You add both the cash dividend and the franking credit to your income, then claim the credit back as an offset against your tax bill. If your tax rate is higher than the company's, you top up the difference. If it's lower, you can actually get money refunded. Retirees and low-income earners often benefit the most.

Fully franked vs partly franked

• Fully franked: the company paid full tax on the profit, so you get the maximum credit.
• Partly franked: only some of the profit was taxed in Australia, so the credit is smaller.
• Unfranked: no Australian tax was paid, so there's no credit attached.

Franking credits aren't a trick or a loophole — they're just the system avoiding double taxation.

One word of caution: chasing high, fully franked dividends often means loading up on banks and miners — the very companies that already dominate many Australian portfolios. A nice tax outcome can quietly increase your concentration. Worth keeping an eye on.