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A franking credit is a nominal unit of tax paid by companies paying tax in countries that have a dividend imputation system. Franking credits are passed on to shareholders along with dividends. Shareholders include in their assessable income not the dividends received but the grossed-up amount back-calculated from that dividend and the current tax rate, then have their income tax payable calculated thereupon, then use franking credits to offset tax payable at the rate of a dollar per credit. In Australia & New Zealand the end result is the elimination of double taxation upon company profits.

Formula of Franking Credit.

Div*tc / (1 - tc).

* tc = company tax rate.

See also


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