Franking Credits for SMSF Clients: Refunds, Pension Phase and the 45-Day Rule

Published 22 October 2026 by Borderfolio

An Australian company that has paid tax can attach franking credits to its dividends. For the shareholder the credit is tax already paid: it is added to income and then offset against the tax on it, and for some shareholders the excess comes back as a refund. How much a credit is worth depends on who holds the share. A super fund in accumulation phase usually gets part of it back, a fund paying a retirement phase pension gets all of it back, and a non-resident gets nothing. This note sets out the calculation, a worked example across five kinds of holder, and the rules that can take the credit away. It is decision support for a professional conversation, not tax advice.

How a franking credit is calculated

The credit attached to a dividend depends on how far the dividend is franked and on the paying company's corporate tax rate for imputation purposes:

credit = dividend × franked % × r / (1 − r)

• r is 30% for most listed companies, so a fully franked dividend carries 3/7 of its cash amount as a credit.
• r is 25% for a base rate entity: broadly a company whose aggregated turnover in the previous year was under A$50 million and no more than 80% of whose assessable income was passive. A fully franked dividend from such a company carries 25/75, or one third, of its cash amount.
• The franked % is set by the company for each dividend, from 0% (unfranked) to 100%. A dividend can be partly franked.

The shareholder includes the grossed-up dividend, cash plus credit, in assessable income, and claims the credit as a tax offset. This is the ‘gross-up and credit’ approach the ATO describes. The offset reduces tax on all of the shareholder's income, not only on the dividend.

Who gets the excess back

When the credit is larger than the tax it offsets, what happens to the excess depends on the shareholder:

• Australian resident individuals are refunded the excess after their tax and Medicare levy are met. Someone on a low marginal rate, or with no other income, can receive most or all of the credit in cash. On the top rate the credit falls short and the individual pays top-up tax.
• Complying super funds in accumulation phase pay a concessional 15% on their assessable income, so a fully franked dividend leaves an excess. Complying funds are entitled to a refund of excess franking credits, claimed through the fund's annual return.
• Super funds paying a retirement phase pension do not pay tax on income from the assets supporting that pension; the ATO calls it exempt current pension income. A complying fund is still entitled to the franking offset on that exempt income, so the whole credit is refunded.
• Companies cannot be refunded. An excess offset can only be converted into a tax loss.
• Non-residents cannot claim the offset at all. The franked part of the dividend is instead exempt from Australian dividend withholding tax.

A worked example

A client receives a A$7,000 fully franked dividend from a company taxed at 30%. The credit is 7,000 × 30/70 = A$3,000, and the grossed-up dividend is A$10,000. The table shows the Australian tax on that dividend for five kinds of holder, using the 2026–27 resident rates. A figure in brackets is a refund, or an offset left over to reduce tax on other income.

• Top bracket. In 2026–27 the 45% rate applies above A$190,000, plus the 2% Medicare levy. Tax on A$10,000 is A$4,700; the credit covers A$3,000 and the client pays A$1,700.
• Low rate. From 1 July 2026 income between A$18,201 and A$45,000 is taxed at 15%. With the Medicare levy, tax is A$1,700 and A$1,300 of the credit is left over. A client whose income qualifies for a reduced Medicare levy, or who is below the tax-free threshold, keeps more.
• SMSF in accumulation phase. Tax is 15% × 10,000 = A$1,500, against a credit of A$3,000, so A$1,500 is refunded or reduces the fund's tax on contributions and other income.
• SMSF in retirement phase. The dividend is exempt current pension income, and the full A$3,000 is refunded. The fund ends up with more than the cash dividend.
• Non-resident. The franked dividend is exempt from Australian withholding and the credit has no value in Australia. The client's country of residence may tax the A$7,000.

From a base rate entity. The same A$7,000 fully franked at 25% carries 7,000 × 25/75 = A$2,333.33, and the grossed-up dividend is A$9,333.33. In an accumulation-phase fund the tax is A$1,400 and A$933.33 is refunded; in retirement phase the full A$2,333.33 is. Entering the wrong company rate overstates the credit by more than a quarter.

The 45-day holding period rule

To claim the offset a shareholder has to be a qualified person. The main test is the holding period rule: the shares must be held ‘at risk’ for at least 45 days (90 for preference shares), not counting the day of purchase or sale. Days when the risk is materially reduced, for example by a hedge or an option, do not count. The rule has to be met once for each parcel of shares, not for each dividend. A separate related payments rule applies where the benefit of the dividend is passed on to someone else.

• Small shareholder exemption. An individual whose total franking credits for the income year are less than A$5,000 does not have to meet the holding period rule, only the related payments rule. That is roughly A$11,667 of fully franked dividends from 30% companies.
• It is for individuals only. The exemption does not cover super funds, so an SMSF trustee should assume the 45-day rule applies to every parcel.
• No partial claim above the line. An individual with more than A$5,000 of credits from a parcel that fails the rule cannot claim any of the credits on it.

Where the franked percentage comes from

No free data source publishes the franked share of every dividend reliably, so take it from the paperwork:

• Listed companies announce each dividend on an ASX Appendix 3A.1, which states the percentage franked, the corporate tax rate used for the credit and the franked amount per share. The holding statement the share registry sends with the payment shows the franked amount, unfranked amount and franking credit.
• ETFs, listed trusts and managed funds do not have to answer the franking questions on Appendix 3A.1. For these, use the annual tax statement, usually an AMIT member annual (AMMA) statement, which reports the franked distributions and the share of franking credits for the year.
• Past is not future. A company's franking can change from one dividend to the next. Any forward estimate uses the last notice and should say so.

What to settle with the client

• Is the client, or the fund, an Australian resident for tax purposes?
• For super, which phase supports the assets: accumulation, retirement phase, or a mix of members in both? Does the fund segregate its pension assets?
• Which holdings are companies taxed at 30%, and which are base rate entities at 25%?
• Where does each franked percentage come from, and from which dividend?
• For individuals, are total credits above A$5,000, and have the shares been held at risk for 45 days?
• For a client leaving Australia, when does residence end, and what does the new country do with the franked dividend?

How Borderfolio for Advisors handles it

• Entered per holding. On the client's Holdings tab you enter, for each Australian holding, the franked percentage and the company rate (30%, or 25% for a base rate entity), with a note of where the figure came from. Holdings left blank are treated as unfranked, and the card says how many are entered.
• The credit is computed by the engine as dividend × franked % × rate ÷ (1 − rate), on the holding's expected dividends.
• Grossed up and offset at the right rate. The credit is grossed up and offset at the client's residence rate, or at the account's tax wrapper rate: 15% for super in accumulation phase, 0% in retirement phase. An excess shows as refundable.
• Non-residents. For a client who is not resident in Australia the credit is recorded with no value.
• In scenarios and reports. The credit appears in the scenario's tax basis card and in dividends kept after tax. For an Australian resident the report adds a franking credits finding listing each holding.
• Retail and industry super funds. A member's investment option can be added as an other asset with units × unit price and the fees from the product disclosure statement. No franking is applied to it, because the unit price is already after the fund's tax.

The documentation shows the screen and lists every input.

Where the estimate stops

• The 45-day holding period rule and the related payments rule are assumed to be met.
• Expected dividends, and the franked percentage carried forward from the last notice, are estimates, not declared amounts.
• Division 296, the additional tax on earnings for members with large super balances, is not modelled.
• Tax on super withdrawals and death benefits is not modelled.

Sources: ATO, refunding excess franking credits, ATO, receiving dividends and other distributions, ATO, refund of franking credits for individuals, ATO, franking credit trading (qualified person test), ATO, allocating franking credits, ATO, how SMSFs are taxed, ATO, tax rates for Australian residents, ATO, withholding from dividends paid to foreign residents, ATO, AMMA statement example, ASX, Appendix 3A.1.

Frequently asked questions

Does an SMSF in pension phase get a refund of franking credits?

Yes. Income from assets supporting a retirement phase income stream is exempt current pension income, but a complying fund still gets the franking tax offset on it. With no tax to offset, the whole credit is refunded: A$3,000 on a A$7,000 fully franked dividend.

How much of a franking credit does an SMSF in accumulation phase get back?

The fund pays 15% on the grossed-up dividend and the credit offsets that tax. On a A$7,000 fully franked dividend the grossed-up amount is A$10,000, tax is A$1,500 and the credit is A$3,000, so A$1,500 is refunded or used against the fund's other tax.

How do you calculate a franking credit?

Multiply the dividend by the franked percentage and by r / (1 − r), where r is the paying company's corporate tax rate for imputation purposes: 30%, or 25% for a base rate entity. A fully franked dividend of A$7,000 carries A$3,000 at 30% and A$2,333.33 at 25%.

Can a non-resident claim Australian franking credits?

No. Only Australian residents can claim the franking tax offset, so a non-resident gets no credit and no refund. In exchange, the franked part of the dividend is exempt from Australian dividend withholding tax.