Franking credits Vs CGT - calculating

This is a example:

In Australia, if a company pays a $1000 dividend, fully franked, what is the franking credit , assuming its 100% fully franked?

For an Australian dividend that is 100% fully franked, the franking credit represents the company tax already paid on the underlying profit.

Australia’s standard company tax rate is usually either:

• 30% (most large companies), or
• 25% (base rate entities / many small companies)

The formula is:

$$\text{Franking Credit} = \text{Cash Dividend} \times \frac{\text{Company Tax Rate}}{1 - \text{Company Tax Rate}}$$

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In May 2026 the federal govt changed the rules regarding CGT

 This has made franking credits even more useful.

Lets compare two forms of income : a $1000 capital gain vs a fully franked $1000 dividend

Capital Gain

(shares held for 5 years)

+ initial investment :$1000 

+ Value after 5 years: $2000. Thus a gain of $1000

+ inflation adjustment  (5%pa) : cost base increases to $1276

+ Taxable gain : $724 (2K - 1276)

Tax @ 39% : $282 ($724 x 39%)

Final income after tax = $718

Fully Franked Dividend

+ dividend : $1000

+ attached franking credits (FC) = $429

+ grossed income = 1429 (1k + 429)

+ Tax @ 39% = $557 ($1429 x 39%)

+ final tax (initial tax - FC) = $128 (557 - 429)

Final income after tax = $872 (1000 - 128)

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Note that if inflation was 3% (not 5%), then the cost base would be less @ $1,159.27

and the taxable gain even more.

+ Taxable gain : $840.73 (2K - 1159.27)

Tax @ 39% : $327.88 ($840 x 39%)

Final income after tax = $672.12

The new CGT indexed system is more favourable in higher inflation enviroments.