The Kitchen Table: a Franking Credits Revelation

Brenda reads her Franking Credit notice

“So, the government gives you money every time the Commonwealth Bank gives you money?”

“Yes Dear”

“You are a genius Darling!”

It was the Carbon Tax in 2013. This year, its the Retirement Tax. “Dividend imputation” are the buzzwords in a scare campaign which may decide the course of Australia’s government. Few understand our complex franking credit system. Over the following days, we will roll out our Kitchen Table series of stories, explaining it in plain terms. The conclusions are stunning.

The letterbox and the cheques in this story are a bit old-school – and we have annualised the Commonwealth Bank dividends – but they serve well for the purposes of illustrating this complex subject.

Scene One: The Kitchen Table.

John has just returned from the letterbox with a letter from the Commonwealth Bank. He opens it to find their yearly cheque for $431 from the bank, the dividend on their 100 shares.

Brenda: “That’s handy!”
John: “What’s this other bit of paper?”
Brenda: “That’s franking credits … whatever they are.”

She stares at the paper:

Brenda: “It’s says 100 per cent. That sounds pretty good to me”.

John puts the Franking Credits notice on the kitchen table next to the nice cheque from the bank.


The next day, John walks back up the driveway with another letter. It’s from the Tax Office.

It’s another cheque! This time it’s their Franking Credit payment for $185!

So, the day before, Brenda and John had got their cheque from the CBA and today they got their cheque from the Government.

John: “So, the government gives us money every time the CBA gives us money?”

Brenda: “Yes Dear”

John: “You are a genius Darling. We can really use this share money.”

“What about the bank interest? You’ve got that $7,000 in the bank, the money Aunty Nellie gave you?”

Brenda: “Good point, I know we got a cheque last week for the interest but nothing from the Government.”

John: “What about that money from my dear old Uncle Fred? Shall we buy some more CBA shares with that?

Brenda: “Definitely, dear! Let’s put the whole lot into shares! I’ll leave the money Auntie Nellie gave me in the bank.”

Dear old Uncle Fred had passed away the year before and left quite a tidy sum. Another $7,000. So John & Brenda decide they will put the whole $7,000 into CBA shares.

They buy another 100 shares.


A year passes.

Another much larger cheque rolls in from the CBA, followed by a bigger one from the Government.

But only for the shares. Still nothing for the interest on the bank deposit.

John had a puzzled look on his face. He was feeling a little bit funny about getting so much money from the government:

John: “Are you sure this is okay … I mean why are we getting all this money from the government, Darling?”

“Do we have to put it in our tax return?”

Brenda: “Of course we have to put it in our tax return Dear. In fact I’ve kept the cheques for the franking credits and stapled them to the franking credit notices. We shouldn’t bank the money until we sort out our tax.”

John: “Very sensible … but isn’t this still like getting free money from the Government?”

Brenda had been taught from an early age to stand on her own two feet, to be independent. People who took money from the government were dole bludgers and n’er do wells, she thought – not hard-working people like her and John.

Brenda: “No dear, we are not welfare bludgers. You go to work in the coal mine every day. I’ve worked part time in the sandwich shop since Pete started at school.

“We’ve paid tax all our lives.”

John: “But we are getting paid more than the dividend on the bank shares … This money from the government is on top of the share money, right?”

Brenda: “It’s something to do with franking credits Dear. It’s not the Dole!”

“But I’m starting to see a pattern. Every time we get our share money we get money from the government. Peter worked it out when he came home from school yesterday. The government is giving us about 42.8 per cent on top of our share money.”

John: “That’s nearly half! Extra!”


Hundreds of thousands of Australian get a payment from the Government because they own shares. This is not a refund or a rebate. You can only get a refund if you have paid for something in the first place.

This is simply a payment.

This is the Franking Credit Pension, a pension whose recipients dare not utter its name. For pensions are supposedly anathema to the self-funded retiree.

If you are a worker, like John and Brenda in our story, it all gets sorted out in your tax return. It is real money that you can use to pay your tax, or, if you’re lucky you can pocket it.

It’s complex. Don’t take our word for it. Ask a professional to sort it out for you.

Sources:  ASX website, Australian Taxation Office website, Department of Human Services website


In the next episode of Kitchen Table, John and Brenda have a go at their tax return.


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