TaxAlly — Lesson: Shares, franking & pre-tax employer shares

Module 11 · ☕

Shares & franking

Two share incentives most people leave on the table: buying shares in your own employer with pre-tax pay, and the franking credits that can refund tax you never paid.

1The idea

Pre-tax employer shares (an ESS). If your company runs an employee share scheme, you can often buy its shares with salary that hasn't been taxed yet — just like super, but not locked until 60. Every dollar buys shares before tax takes its cut, so more capital is working from day one. Many schemes add a discount, and if you earn under ~$180k you can receive up to $1,000 of shares tax-free.

Franking credits. When an Australian company pays a dividend, it has usually already paid 30% company tax on that profit. You receive a credit for that tax. If your own rate is below 30%, the difference is refunded to you — tax handed back that you never paid yourself.

2Who it's for

ESS: employees whose employer offers a scheme — most listed companies and many scale-ups do. Ask HR.

Franking: anyone holding Australian shares or ETFs that pay franked dividends — and most powerful for low-rate holders: a low-income spouse, or money held in super/pension where the rate is 15% or 0%.

3The worked example

Pre-tax vs after-tax to buy in. You want to put $5,000 of pay into your employer's shares, on a 32% rate:

After-tax (buy on market yourself)$3,400 invested

Pre-tax through the ESS$5,000 invested

Extra capital working from day one+$1,600

Franking refund. A $1,000 fully-franked dividend carries about $428 of franking credits — the 30% company tax already paid on it. If the shares are owned by a low- or no-income earner — say a partner who isn't working, taxed at 0% — that $428 is paid back to them as a cash refund; at a 19% rate it still wipes out most of the tax on the dividend. Same dividend, very different result depending on whose name owns the shares.

4Try it on your numbers

Whether through an ESS or on the open market, the wealth comes from consistently investing and letting it compound. See what a monthly amount builds:

Invest in shares monthly

Over 10 yrs

Each month $500

Growth 10.5%

S&P 500 long-run average ≈ 10.5% (with dividends)

In 10 years, projected $105,425

you invest $60,000 · growth $45,425

yr 1yr 10

your money growth · each bar = one year

A projection at your assumed return. The S&P 500 has averaged ~10%/yr with dividends over 30 years (~7.6% after inflation) — but across a wildly uneven path, with years from −37% to +30%+. Investing monthly smooths your buy price, not the risk. Before tax (CGT on gains when you sell, halved if held 12+ months).

5The honest caveats

ESS concentration risk. Your salary and your investment both ride on one employer. If the company stumbles, both can fall together — keep it a sensible slice of your wealth.

ESS rules are fiddly. Shares are often restricted for a few years, and when you're taxed (the "taxing point") varies by scheme — get the type right.

Don't chase franking alone. A refund doesn't rescue a bad investment, and the 45-day holding rule applies before you can claim the credits.

A partner's name means real ownership — the shares must be theirs, bought with their money, not a paperwork trick. Moving existing shares to them is a CGT event, and it doesn't work with children (minors pay penalty tax on investment income).

6How to action it

Ask HR whether there's an employee share scheme, the discount, and which tax treatment it uses.

Check if you qualify for the ~$1,000 tax-free concession (taxable income under ~$180k).

For franking, consider holding franked shares/ETFs in the lower-rate partner's name — and mind the 45-day rule.

Next lesson

Bonus shares that vest

Continue

Questions about your own situation?

This lesson is general information. For questions about your circumstances — "should I join my employer's scheme?", "which option suits my income?" — a registered tax agent can answer them 1:1 and give advice specific to you.

Ask a registered agent Optional 1:1 · additional fee · advice signed by a registered tax agent

General educational information, not personal tax or financial advice. ESS and franking rules have real detail and exceptions — confirm your specifics with a registered tax agent or at ato.gov.au. Figures are estimates for FY2025-26.