Detailed tax information about dividends (Cash Dividend, DRP, and BSP)

Cash dividend

All dividends paid by NAB are paid out of NAB's profits. In addition to any cash dividend, the Directors may also determine that a dividend be provided in a form other than cash.

The Directors will nominate the proportion of any dividend (in cents per share) to be paid in cash. A statement giving details of the cash dividend paid, together with any franking credits attaching to that dividend will be sent to each shareholder when the dividend is paid (whether by direct credit or cheque).

Australian resident shareholders

Any cash dividend you receive forms part of your Australian taxable income.

The cash component of the dividend may also be fully or partly franked under Australia's dividend imputation system. Any franking credits attached to the dividend also normally form part of your Australian taxable income. However, you are generally entitled to a rebate of tax, based on the franking credits attached to the dividend.

If your taxable income is too low to make you liable to tax, or the franking credits exceed your overall tax liability, then you may be entitled to receive a refund from the Australian Taxation Office for any excess franking credits. Companies are not eligible for a refund but may gross up the franking credit and carry it forward as a tax loss, for utilisation against future income.

Non-Australian resident shareholders

You'll generally be subject to Australian dividend withholding tax on any unfranked part of the dividend.

However, you won't be subject to Australian dividend withholding tax on any unfranked part of the dividend to the extent that it is designated as 'Conduit Foreign Income' for tax purposes by NAB, or on the franked part of the dividend. The extent to which the dividend is designated as Conduit Foreign Income will be advised on your dividend statement. The dividend is not otherwise subject to tax in Australia and you'll be unable to use or obtain a refund for any franking credits attached to it.

New Zealand resident shareholders

NAB can also attach New Zealand imputation credits to dividends paid. As a general rule, New Zealand imputation credits are only relevant for shareholders who are required to file New Zealand income tax returns.

A New Zealand shareholder dividend statement detailing the New Zealand imputation credits will be sent to those shareholders with a registered address in New Zealand.

Overseas Taxation Implications

This discussion deals mostly with the Australian tax consequences for shareholders residing outside of Australia. You should seek independent tax advice in respect of the tax treatment of cash dividends in your country of residence.

Dividend Reinvestment Plan (DRP)

Australian resident shareholders

Any dividend applied to acquire shares under the DRP forms part of your Australian taxable income. The dividend may also be fully or party franked under Australia's dividend imputation system. Any franking credits attached to the dividend normally form part of your Australian taxable income. However, you are generally entitled to a tax rebate, based on the franking credits attached to the dividend.

If your taxable income is too low to make you liable for tax, or the franking credits exceed your overall tax liability, then you may be entitled to receive a refund from the Australian Taxation Office for any excess franking credits. Companies are not eligible for a refund but may gross up the franking credit and carry it forward as a tax loss, to be utilised against future income.

You're subject to Australian tax on any capital gain you make when you dispose of shares you received under the DRP. For the purpose of calculating any capital gain (or capital loss), the cost of the shares acquired under the DRP is the price calculated in accordance with the formula for calculating the "current market price" (as described on page 6 of the Dividend Package booklet). If the shares are issued at a discount to market value, the cost of the shares will be the discounted price (ie. the cost is the amount of the dividend that's been applied to acquire the shares on your behalf). The price will be included on your dividend statement.

Non-Australian resident shareholders

You'll generally be subject to Australian dividend withholding tax on the unfranked part of the dividend. However, you won't be subject to Australian dividend withholding tax on the unfranked part of the dividend (to the extent that it is declared as "Conduit Foreign Income" for tax purposes by NAB, or on the franked part of the dividend). The extent to which the dividend is designated as Conduit Foreign Income will be advised on your dividend statement. Otherwise the dividend is not otherise subject to tax in Australia and you'll be unable to use or obtain a refund for any franking credits attached to it.

If you dispose of shares you received under the DRP, you're currently not subject to Australian tax on any capital gain made. Further, you're not entitled to deduct any capital loss you incur on the disposal unless the shares are held as part of a trade business conducted through a permanent establishment in Australia.

New Zealand resident shareholders

NAB can also attach New Zealand imputation credits to dividends paid. Generally, New Zealand imputation credits are only relevant for shareholders required to file New Zealand income tax returns.

A New Zealand shareholder dividend statement will be sent to those shareholders with a registered address in New Zealand detailing the New Zealand imputation credits attached.

Overseas Taxation Implications

This discussion deals mostly with the Australian tax consequences of shareholders resident outside Australia. You should seek independent tax advice regarding the tax treatment of dividends reinvested under the DRP and the disposal of DRP shares in your country of residence.

Bonus Share Plan (BSP)

Australian resident shareholders

Generally, the bonus shares are not treated as a dividend for Australian tax purposes. Consequently, franking credits do not attach to these bonus shares and no amount should form part of your taxable income.

In certain circumstances, bonus shares are treated as a dividend to which franking credits attach (for Australian tax purposes). In these cases, an amount equal to the dividend and any attached franking credits would normally form part of your Australian taxable income. However, you're generally entitled to a tax rebate based on the franking credits attached to the dividend.

The Commissioner of Taxation (Commissioner) may also determine that the bonus shares are treated as a dividend to which no franking credits attach. If the Commissioner makes such a determination, an amount equal to the dividend normally forms part of your Australian taxable income.

The precise circumstances where the Commissioner might make such a determination are unclear. However, the Explanatory Memorandum to the Federal legislation that introduced the bonus share provisions has some clues. It indicates that the Commissioner should generally not make a determination where bonus shares are provided in the ordinary course of business by a publicly listed company as an alternative to franked dividends, unless the shareholder who receives the bonus shares engages in a course of conduct which provides an equivalent to the cash dividend in a more tax effective form. An example of this? Consistently selling the bonus shares tax free after receiving them where they acquired their original shares prior to 20 September 1985.

Further, the Commissioner cannot make such a determination where shareholders who don't participate in the BSP receive fully franked dividends.

Australian resident shareholders – Capital Gains Tax

You won't be subject to Australian tax on any capital gain made when your bonus shares are disposed of if:

  • the bonus shares aren't treated as a dividend for Australian tax purposes, and
  • your entitlement to bonus shares arises from original shares acquired (or deemed to have been acquired) before 20 September 1985.

Conversely, if your entitlement to bonus shares arises from original shares acquired (or deemed to have been acquired) after 19 September 1985 you're generally subject to Australian tax on any capital gain made when the bonus shares are disposed of. To calculate any capital gain (or capital loss), the cost of the bonus shares is calculated by apportioning the cost of the original shares over both the original and bonus shares.

If the bonus shares are treated as a dividend for Australian tax purposes, you're also generally subject to Australian tax on any capital gain made when the bonus shares are sold. To calculate any capital gain (or capital loss), the cost of the bonus shares includes the amount of the dividend.

Non-Australian resident shareholders

Generally, bonus shares are not treated as a dividend for Australian tax purposes. Consequently, no Australian dividend withholding tax is payable and no amount should form part of your Australian taxable income.

If the bonus shares are treated as a dividend (in the same circumstances as set out above in relation to an Australian resident shareholder) then, generally, you won't be able to use any franking credits attached to the dividend. However, the franked part of the dividend will not be subject to Australian dividend withholding tax and the dividend, regardless of the franking credits attached to it, is not treated as part of your Australian taxable income.

Currently, you're not subject to Australian tax on any capital gain made if you dispose of bonus shares. Further, you're not entitled to deduct any capital loss that you may be incurred on disposal unless the shares are held as part of a trade business conducted through a permanent establishment in Australia.

Overseas Taxation Implications

This discussion deals mostly with the Australian tax consequences of shareholders resident outside Australia. You should seek independent tax advice about the tax treatment of receiving and selling bonus shares in your country of residence.