how to leave australia

Guide

Franking credits and what dies when you leave

For a retiree living off Australian dividends, franking credits are often the difference between a comfortable income and a squeezed one. Move overseas and the most valuable part of the system (the cash refund) simply stops applying to you. Here is exactly what franking does, what survives departure, and what evaporates.

How franking works for a resident

When an Australian company pays tax on its profits (at 30% for large companies) and then distributes those after-tax profits as a fully franked dividend, it attaches a franking credit for the tax already paid. The idea is to avoid double taxation: the profit shouldn’t be taxed once in the company and again in your hands.

As a resident you gross up the dividend. You declare the cash dividend plus the attached franking credit as income, then claim the franking credit against your tax bill. Crucially, in Australia the franking credit is refundable: if the credit exceeds the tax you owe on that income, the ATO pays you the difference in cash. That refundability, introduced in 2000, is what makes franking so powerful for low-rate and zero-rate investors like retirees and super funds in pension phase.

What survives departure, and what dies

Two things happen to a non-resident holding Australian shares. First, franked dividends paid to a non-resident are generally not subject to further Australian withholding tax to the extent they are franked, the company tax is treated as having done the job. That part is fine; you are not taxed again.

But here is what dies: the refundability. A non-resident cannot lodge to get the franking credit refunded in cash. For a resident on a low rate, a fully franked dividend can generate a cash refund. For a non-resident, that same credit is simply gone. It reduces a tax liability you no longer have, and there is no mechanism to hand it back to you. The credit doesn’t transfer, doesn’t carry forward, and can’t be claimed in your new country either. It just ceases to be worth anything.

So the arithmetic that makes franking attractive, “my effective tax on this dividend is negative because I get the credit back”, is exactly the arithmetic that breaks on departure. The dividend keeps coming; the top-up cheque stops.

The arithmetic of a $50,000 fully-franked dividend stream

Suppose you receive $50,000 in fully franked dividends a year, a plausible retirement income from a concentrated Australian share portfolio. The attached franking credit is the company tax already paid:

Franking credit = $50,000 × 30 / 70 ≈ $21,428.

Your grossed-up income is therefore about $71,428 ($50,000 cash + $21,428 credit).

As a resident retiree with little other income, your tax on $71,428 is modest, the first $18,200 is tax-free, the next slices are at 16% and 30%, so your tax bill is well below the $21,428 of credits attached. The excess credit is refunded to you in cash. In pension-phase super, where the tax rate is 0%, the entire $21,428 comes back as a refund. That refund is real income you spend.

As a non-resident, the same $50,000 fully franked dividend arrives with no further Australian tax to pay, but the $21,428 credit is worthless. There is no return to lodge for a refund, no offset to apply, nothing. You have gone from a household income of roughly $71,000 (dividends plus refund) to $50,000 (dividends only). That is a $21,000-a-year cut to spendable income, on the same portfolio, purely from the change in residency.

Why zero-tax destinations make it worse, not better

It is tempting to think a zero-tax destination cushions this. You pay no local tax, so surely you come out ahead? The opposite is true for franking. The franking credit is a credit for Australian company tax. It can only be used against an Australian tax liability, and only refunded to an Australian resident. Your zero-tax country has no mechanism to recognise or refund an Australian franking credit. It isn’t their tax, and you owe them nothing to offset it against anyway.

So the credit is stranded: worthless in Australia because you’re non-resident, and worthless abroad because it’s a foreign credit against a tax you don’t pay. The very feature that made your dividend income tax-efficient at home (a refundable domestic credit) is the feature that cannot travel. A retiree who relocates to a zero-tax jurisdiction to “save tax” can end up materially worse off on a franked Australian portfolio than they were paying resident tax, because the refund they lose is larger than the resident tax they were paying.

What this means for your planning

General information only, not tax, legal or financial advice, and no tax agent services are provided. Verify your position with a registered tax agent before acting. Rates and rules last verified: 23 July 2026.