Franking credits are one of the most beneficial features of the Australian tax system, especially for retirees and Self-Managed Superannuation Funds (SMSFs). Whether you’re drawing an income from shares or managing a super fund, understanding franking credits can mean more money at tax time.
In this blog, we’ll break down what franking credits are, how they work, and how retirees and SMSFs can use them to maximise tax returns legally.
Let’s explore:
What Are Franking Credits?
Investors get franking credits, also known as imputation credits, from firms when they pay dividends. They show the taxes amount that a company has already paid on its earnings.
When a firm gives money to its shareholders, it often includes franking credits to show that taxes have already been paid. This prevents a double taxation of the company and its stockholders.
Example:
- When a business makes $100 in profit, it must pay $30 in corporation tax (30% rate).
- The final $70 will be distributed as a completely franked payout.
- You, the shareholder, receive:
- $70 in cash dividend
- $30 franking credit
You then declare $100 as income in your tax return but get a $30 credit, which can reduce the tax you owe or even lead to a refund.
Why Franking Credits Matter for Retirees and SMSFs?
Retirees and SMSFs can get their franking credits back in full. This is especially true for those with low-taxed incomes or who are in the pension phase. This makes dividend-paying shares an even better way to make money.
Retirees
- Many retirees rely on dividend income to supplement their retirement.
- If your income is below the tax-free threshold ($18,200 for individuals), you could receive a full refund of franking credits.
- This creates additional tax benefits for retirees, especially those not required to lodge a tax return.
SMSFs
- SMSFs usually don’t pay taxes when they are in the pension phase.
- Because of this, all franking points are returned.
- Smart SMSF tax planning around dividend-paying investments can significantly enhance returns.
How to Claim Franking Credits
In Australia, there are several methods to request refund of excess franking credits. Here’s how to do it effectively in 2025:
1. Online via ATO Online (myGov)
Using your myGov account that is connected to the ATO is the simplest method to submit a claim.. Follow these steps:
- Log in to your ATO Online account
- Go to Tax → Lodgments → Refund of franking credits
- Review the pre-filled information (based on third-party data)
- Add or correct any missing dividend details
- Submit your application
The majority of online tax returns for retirees are handled in 10 business days.
2. Automatic Refund for Eligible Retirees (No Application Needed)
If you are over 60, don’t have to file a tax return, don’t use a tax accountant, and meet other criteria, like making less than $18,200 a year or getting a dividend refund of less than $5,460, the ATO may give you your franking credits back right away.
These refunds are calculated using information from share registries and other financial institutions. Most refunds are deposited into your bank account by mid-August.
Tip: Your accountant can look over your ATO summary and tell you what to do next if you’re not sure if you’re qualified for automatic refunds or want to make sure you’ve gotten what you were owed.
For Individuals – Claim via Tax Return
If you file a routine return:
- Declare franking credits and dividends in the “Income” section of your tax return.
- Make sure that every amount matches the information provided by the ATO and your dividend statements.
- Register via myGov or with your registered tax agent.
Why it matters: A registered tax accountant in Caroline springs can maximise your return, ensure correct ATO coding, and catch any missing data—so you don’t leave money on the table.
For SMSFs – Should Use the SMSF Annual Return
On their yearly return, SMSFs must list dividends and franking payments.
To do this correctly:
- Make sure that dividend statements are reported correctly.
- Give credits to the right member account (particularly during the pension phase)
- Keep all of your financial records and paperwork up to date
Need clarity? A professional SMSF tax accountant can handle all of your reporting, make sure you follow the rules, and assist you get full refunds when you can.
Rules and Eligibility
While franking credits are a powerful tool, there are rules to follow.
1. 45-Day Holding Rule
Shareholders are required to hold the shares “at risk” for at least 45 days, excluding the days of purchase or sale. This restriction stops people from immediately buying shares merely to get the credits.
2. Refunds Are Available
If your franking credits are more than what you owe in taxes, the ATO may give you back the difference. This is a big benefit for SMSFs and retirees.
3. Claim Must Be by the Right Person
Only the individual or fund that legally owns the shares and receives the dividends can claim the credits.
Strategies to Maximise Franking Credit Benefits
Retirees and SMSFs can maximise their tax benefits in the following useful ways:
1. Invest in Fully Franked Shares
Companies often pay fully franked dividends. These help people who are eligible for returns the most.
2. SMSF Pension Phase
Make sure your SMSF is set up properly for the retirement phase. A fund in the pension phase with compliant documentation will pay 0% tax and receive full refunds on franking credits. Work with a professional for tax planning for SMSFs to ensure compliance and maximise returns.
3. Income Planning
Plan your income so that you don’t have to pay a lot of taxes. In this approach you will maximise the value of your points.
4. Use an Accountant or SMSF Administrator
You need to know how to report and calculate franking credits correctly. A tax accountant in Caroline Springs can help you get the funds back and avoid making mistakes on your tax return.
Ready to Maximise Your Tax Return?
Whether you’re a retiree or managing an SMSF, don’t let franking credits go to waste. Talk LTE TAX, the best tax accountants in Caroline Springs who understand franking credits inside and out. A little advice now could result in a bigger tax refund tomorrow. Call us now!
Final Thoughts
In the end, franking credits are a great way for retirees and SMSFs to save money on taxes. You might get back thousands of dollars in extra franking credits per year if you grasp the system and arrange your SMSF taxes well.
Retirees and SMSF trustees in Caroline Springs can file proper returns, avoid frequent mistakes, and get the most out of every dividend received with the advice of a knowledgeable tax accountant.
Franking credits are more than just a tax rule; they can also help you make money. Make the system work for you by starting to plan today.
