Income you receive from share dividends will generally be taxed at your marginal tax rate. Australia also has a system of dividend imputation.  This gives investors who’ve been paid a dividend personal tax credit on the Australian Company Tax already paid by the company.  If the company pays tax overseas there will be no tax credit associated with offshore tax.
‘Franked' dividends are dividends paid by an Australian company out of profits on which it has already paid company tax. You get a credit for the 30% company tax already paid, called an ‘imputation credit,' or 'franking credit'. This means that a $7 franked dividend can be worth the same as a $10 unfranked dividend.
For investors on a marginal tax rate higher than 30%, franking credits can reduce the tax liability on the dividend, making them highly tax-effective.
For investors on the same 30% tax rate as the company tax rate, the franking credit rebate can make the fully franked dividends tax-free: they pay only the Medicare levy on this income.
For those on a marginal tax rate of less than 30%, excess imputation credits may be refunded to you in cash, because they’re not needed to offset tax on the dividends. They may also be offset against tax payable on other income in the year of receipt.
If you’re getting excess franking credits refunded to you, it is hugely tax-effective in superannuation. For example in a self-managed super fund that’s in accumulation phase, the tax rate is 15%, and investors actually may get a tax refund of $215 for every $1000 of fully franked dividends they receive. For such investors, a dollar of fully franked dividend income is effectively worth more than a dollar.
It can even be better when a self-managed super fund moves to pension phase, where the fund’s assets are being used solely for the purpose of paying out pensions to members. In this case there may be no tax on the income or capital gains from the assets and the franked dividends can actually be refunded in full by the ATO – making a dollar of fully franked dividend income effectively worth almost $1.43 to a pension-paying SMSF, at current tax rates.