Gross-Up in Australia: What It Means for Your Taxable Income (2025 Guide)

When it comes to understanding your true income for tax purposes in Australia, the concept of gross-up plays a crucial role. Whether you’re receiving franked dividends or fringe benefits from your employer, gross-up can significantly affect the amount you report to the Australian Taxation Office (ATO) — and ultimately, your tax bill. But what exactly does gross-up mean, and how does it work in practice? Let’s break it down.

What Is Gross-Up and Why Does It Matter?

Gross-up is the process of adjusting a payment so it reflects the equivalent pre-tax amount. For example, if you receive a benefit or income that has already had tax paid on it (like a franked dividend or a fringe benefit), you need to “gross it up” to show what the income would have been before tax was paid. This ensures that the right amount of tax credits or liabilities are calculated on your total income.

• Dividends: Australian companies often pay dividends that are already taxed at the company level. When reporting these dividends, you gross up the amount to reflect the original, pre-tax profit.
• Fringe Benefits: Employers may provide non-cash benefits (like a company car or health insurance). The taxable value of these is grossed up to reflect the tax value if paid as salary.

Gross-Up in Action: Dividends and Franking Credits

One of the most common places Australians encounter gross-up is with franked dividends. When a company pays a franked dividend, it means some or all of the company tax has already been paid on those profits. To avoid double-taxing the shareholder, the tax system uses gross-up and franking credits.

Here’s how it works in practice for the 2024-2025 financial year:

• You receive a franked dividend of $700.
• The dividend statement shows a franking credit of $300 (reflecting 30% company tax).
• Your assessable income is the total of both: $700 (dividend) + $300 (franking credit) = $1,000 grossed-up dividend.
• You include $1,000 as income on your tax return, then claim the $300 franking credit to offset your tax bill.

This approach is designed to create fairness between different types of investors and income earners, ensuring income isn’t taxed twice.

Gross-Up and Fringe Benefits Tax: What Changed in 2025?

Employers in Australia who provide fringe benefits are required to calculate Fringe Benefits Tax (FBT) on the grossed-up value of those benefits. The ATO sets gross-up rates each year to reflect the difference between the taxable value of a benefit and the equivalent gross salary an employee would have needed to buy that benefit after tax.

For the 2024-2025 FBT year, the gross-up rates are:

• Type 1 gross-up rate (where GST is claimed): 2.0802
• Type 2 gross-up rate (where no GST credit is claimed): 1.8868

Example: If your employer gives you a benefit valued at $5,000 (with GST claimed), the grossed-up value is $5,000 x 2.0802 = $10,401. The FBT is then applied to this grossed-up value.

This gross-up calculation is central to the FBT regime, which was updated in 2025 to ensure consistency with the marginal tax rates and GST rules. The latest changes also tighten reporting requirements for employers, making it more important than ever to understand how gross-up affects both your income statement and your potential tax liability.

Smart Strategies: Making Gross-Up Work for You

Understanding gross-up can help you make smarter financial decisions, especially if you’re an investor or employee receiving non-cash benefits. Here are a few tips:

• Maximise Franking Credits: If you’re investing in Australian shares, look for companies with fully franked dividends. This can boost your after-tax returns by letting you claim the full value of franking credits.
• Review Your Salary Package: If you’re offered fringe benefits, ask your employer to explain the grossed-up value and how it impacts your reportable income. This can affect your eligibility for government benefits or family tax offsets.
• Keep Records: For both dividends and fringe benefits, keep all statements and documentation. You’ll need them to accurately report your grossed-up income on your tax return.

As the ATO continues to refine gross-up rules and enforcement in 2025, staying informed can help you avoid pitfalls and make the most of your tax position.

Conclusion: Gross-Up Is More Than Just a Tax Calculation

Gross-up may sound technical, but it’s a vital concept for anyone dealing with investments or employment benefits in Australia. By understanding how it works, you can ensure your taxable income is reported correctly and take advantage of tax credits and offsets you’re entitled to. Whether you’re an investor or an employee, being across the latest gross-up rules in 2025 puts you in a stronger financial position.