Franking credits are a type of tax credit that companies pass on to their shareholders along with dividend payments.
They are designed to prevent double taxation, once at the corporate level and again at the individual level. Since the company has already paid corporate tax on its profits, franking credits allow shareholders to receive a credit for the tax already paid when they declare the dividend income on their tax return.
Depending on the shareholder’s income level and tax bracket, the franking credit can reduce their personal tax liability or even result in a tax refund.