Home › Academy › Australian tax and super for investors
Beginner · Lesson 2 of 4Franking credits and the 45-day rule
Franking credits (covered in the Foundations course) are added to your assessable income and then offset against your tax. If your tax rate is lower than the company rate, the excess is refunded.
To claim franking credits you generally must hold the shares "at risk" for at least 45 days (90 for some preference shares), not counting the purchase and sale days. Hedging with options can reduce your at-risk position. There is a small-shareholder exemption where total franking credits are under $5,000 a year.
Franking makes Australian dividend shares especially valuable to retirees in pension phase and low-income investors.
Key takeaways
- Credits are grossed up and offset; excess can be refunded.
- The 45-day holding rule applies (with a $5,000 small-shareholder exemption).
- Most valuable to low tax rate investors.
Check your understanding
1. The 45-day rule is about...
- How long to hold to get franking credits
- When dividends are paid
- Broker settlement
- CGT discount
Show the answer
How long to hold to get franking credits. Shares must be held at risk for 45 days.
2. Who benefits most from refundable franking credits?
- Top-rate taxpayers
- Retirees in pension phase and low-income investors
- Companies
- Foreign investors
Show the answer
Retirees in pension phase and low-income investors. Their tax rate is below the company rate.
Go deeper
- Wikipedia: Dividend imputation
- YouTube videos: franking credits 45 day rule explained
- Investopedia: franking credits
- ATO: holding period rule franking
Practise this in Vestora
Look up real shares, test ideas with paper trading, and track your progress through the course.
Open the app freeGeneral education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.