The imputation system provides a way for Australian corporate tax entities (entities taxed separately from their members) to pass on credit for income tax they have paid to their members. This prevents income tax being levied twice - once when the income is earned by the entity, and again when income is distributed to members. Corporate tax entities are taxed at the company tax rate (currently 30%).
The imputation system works by franking a distribution. The franking account is a record of franking credits and debits that arise in an income year. All corporate tax entities are required to maintain a franking account. Typically a franking credit would arise in the franking account when the corporate tax entity pays their income tax or receives a franked dividend. A franking debit would arise when the corporate tax entity pays a franked dividend or receives a refund of income tax it has paid.
MORE: For more information see the Imputation section of the ATO website.