We can all use a little extra income now and again and for some, this may be in the form of unclaimed franking credits on shares. But just how do you claim this extra income?
In recent times it has become more apparent that many who own shares are not claiming their franking credits. In most cases those who that are missing out are those who do not have to pay tax and therefore do not complete a yearly tax return. With many now owning shares these days, and with the difficulties in covering living expenses, it is a timely reminder to consider claiming these credits.
So, what are franking credits? Put simply, the dividends paid by Australian companies to shareholders are taxed under a system known as ‘imputation’. The tax paid by companies (currently 30 per cent) is allocated to shareholders as franking credits attached to the dividends and are received by the shareholder. If the franking credit received by the shareholder exceeds the tax which they pay, the difference can be claimed back as a tax refund.
For example, if the shareholder’s marginal tax rate is 15 per cent, the franking credits represent the difference between the 30 per cent company tax rate and their own rate of 15 per cent. Alternatively if the shareholders marginal tax rate was 45 per cent they could claim the franking credits and would only pay the difference between their marginal tax rate and the company tax rate (45 per cent marginal tax rate – 30 per cent company tax rate). Therefore, they would only pay tax of 15 per cent on those dividends.
The process involved in claiming the franking credits is relatively simple. All shareholders need to do is gather their Share Dividend Statements which show the relevant information and complete an ‘Application for refund of franking credits for individuals’ form from the Australian Taxation Office (ATO). These forms are available online and can be downloaded from the ATO website. Even unclaimed franking credits from previous years (back to the year 2001) can be claimed and those applications are also available on the ATO website.
Alternatively, you can claim credits for the most recent financial year over the phone by calling the ATO on 132865.
So if you own shares and don’t complete a tax return each year, don’t forget to claim your franking credits.
The National Information Centre on Retirement Investments Inc (NICRI) is a government funded, independent consumer agency providing information to the general public on investment products.
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