Various ways to claim a franking credits refund

My wife and I are full age pensioners. Our pension is our only source of income, except for interest from banks, which is negligible, and dividends on shares we hold. Are we entitled to obtain a refund from the Australian Taxation Office (ATO) on the franking credits of the shares? If so, how do I go about applying for it? S.S.

Yes, you can! If you do not need to lodge a tax return, you can still claim a refund of unused franking credits in a number of ways.

You can do a computer search for “ATO form NAT4098, Application for refund of franking credits for individuals”, fill it in and mail it to the ATO. Or you can fill in the form and phone in the details to 13 28 65. Enter your Tax File Number and press Option 2 for an automated system.

You can also go online via a MyGov account. This can be set up at my.gov.au – if you do not already have an account – then link it to the ATO, from where you can apply for the franking credits refund.

This should lead to future automatic refunds of franking credits for people aged over 60 with a small portfolio – i.e. a refund under $5460 – and who do not need to submit a tax return.

In your column, you are often asked by people who are risk adverse where to invest for a good rate of return, and you often suggest various bank deposits with a poor rate of return. Why have you not suggested Capital Notes, which are traded on the Australian Securities Exchange (ASX)? For instance, Commonwealth Bank (ASX code CBAPE) offers 5.2 per cent plus the three-year Bank Bill Swap rate, fully franked. Dividends are paid quarterly, as compared to bank deposits, which are generally paid at the end of 12 months. M.W.

You refer to a “hybrid security”, of which there are about 50 listed on the ASX. They should not be confused with listed “Convertible Notes”, which are pure debt securities.

Hybrids evolved from the older “preference shares”, whose owners ranked higher when it came to paying dividends or receiving a payout, if the bank ran into trouble.

Hybrid’s are complex securities that have been criticised in numerous warnings from the Australian Securities and Investments Commission (ASIC). Five years ago, the ASIC chairman called them a “ridiculous product for retail investors” and said “it was notable that they had been banned for retail investors in other markets, such as the United Kingdom.”