Australia's $29 billion system of franking credits for investors is skewed heavily to the rich and is ripping a hole in the budget, a new analysis has found, with one tax break found nowhere else in the world costing almost $5 billion a year.

Millions of Australians benefit from franking credits, which allow investors who receive dividends to claim a tax credit at the corporate rate of 30 per cent.

Loophole: The richest 20 per cent of households get $8.3 billion in franking credits while the poorest 20 per cent of households receive just $164 million. Credit:Fairfax

Designed to avoid double taxation, the so-called franking credits net households $10 billion each year, with companies benefiting by a similar amount. The final one-third goes to superannuation funds, charities and trusts.

According to a study by the Australia Institute, the wealthiest 10 per cent of households – those earning disposable income of more than $207,000 – gain almost 75 per cent of the $10 billion in franking credits siphoned directly to them.