NAB Capital Notes

NAB Capital Notes are convertible notes directly issued by NAB on 23 March 2015 and listed on the ASX under the code NABPC. The issue price for NAB Capital Notes is $100 per NAB Capital Note. They're not guaranteed or secured and are not a deposit account or any other account with NAB.

NAB Capital Notes are expected to pay a discretionary, quarterly, floating rate, non-cumulative Distribution. The Distribution Rate is equal to the sum of the Bank Bill Rate and a Margin of 3.50%, a sum adjusted for NAB’s Tax Rate¹ to reflect franking credits attached to each Distribution (subject to availability)². Distributions are expected to be fully franked.

NAB Capital Notes will mandatorily convert into NAB Ordinary Shares on 23 March 2022, provided certain conditions are met. With the written prior approval of APRA, NAB may elect to convert, redeem or resell NAB Capital Notes on 23 March 2020, or earlier, on the occurrence of particular events, provided certain conditions are met.

Holders will have no right to require NAB to convert NAB Capital Notes into Ordinary Shares, or to redeem or resell NAB Capital Notes. Without a conversion, redemption or resale, holders would have to sell their NAB Capital Notes on the ASX at the prevailing market price.

For more information on NAB Capital Notes refer to:

The above information is not financial advice. Please consult your independent financial adviser if you're thinking about investing in NAB Capital Notes.

NAB Capital Notes do not constitute deposit liabilities of NAB, are not protected accounts for the purposes of the Banking Act 1959 (Cth) or any other accounts. They're not guaranteed or insured by any government, government agency or compensation scheme of the Commonwealth of Australia or any other jurisdiction, by any member of the NAB Group or by any other party.

Frequently asked questions

What are the NAB Capital Notes?

NAB Capital Notes are hybrid securities with features of both debt and equity.

The legal form of the securities is that of convertible notes issued by NAB which pay quarterly distributions.

However, under Australian tax law, specific rules determine whether a hybrid instrument is debt or equity for tax purposes. NAB Capital Notes are characterised as ‘non-share equity interests’ for Australian tax purposes. This means Distributions on the NAB Capital Notes should be treated as 'non-share dividends' that are frankable. The Prospectus states that payments are expected to be fully franked, however franking is not guaranteed.

Why does my NAB Capital Notes statement say ‘distribution’ instead of interest payment?

The payments on the NAB Capital Notes are described in the Prospectus as ‘distributions’ because the securities are notes, rather than shares.

However, under Australian tax law, specific rules determine whether a hybrid instrument is debt or equity for tax purposes. Under these rules, the payments on the NAB Capital Notes are treated as frankable non-share dividends.

How will my distributions be taxed in Australia?

Australian resident holders must include any cash distributions paid on the NAB Capital Notes in their Australian taxable income.

The cash component may also be franked under Australia's dividend imputation system. Any franking credits attached to the distribution will normally also form part of an Australian resident investor’s taxable income. However, they're generally entitled to a rebate of tax for the franking credits attached to the dividend.

In some circumstances, Australian resident individuals may be entitled to a refund from the Australian Taxation Office for any excess franking credits (eg. if their taxable income is too low to make them liable to tax, or the franking credits exceed their overall tax liability).

Will the distributions be subject to non-resident withholding tax?

Fully franked dividends are not subject to non-resident withholding tax.

The Prospectus states that payments are expected to be fully franked, however franking is not guaranteed.

Where should the NAB Capital Notes distributions be disclosed in my Australian tax return?

Distributions on the NAB Capital Notes should be disclosed in your Australian income tax return as franked dividends.

Will the ATO consider the NAB Capital Notes to be a traditional security?

No, the ATO considers that the NAB Capital Notes are not ‘traditional securities’ under the Australian tax law.

Will NAB provide NAB Capital Notes holders with an annual distribution statement for tax purposes?

No. The relevant information that NAB Capital Notes holders require for tax purposes is contained in the quarterly distribution statements provided to NAB Capital Notes holders. The relevant quarterly distribution statements are also readily available from our Share Registry’s website www.investorcentre.com/au.

Did NAB obtain an ATO ruling outlining the tax implications of holding NAB Capital Notes?

Yes, NAB has obtained a class ruling which outlines the tax implications for investors in detail. View the ATO Class Ruling (PDF, 208KB).

Important information

¹NAB's Tax Rate means the Australian corporate tax rate applicable to the franking account of NAB on the relevant Distribution Payment Date (currently 30%).

²A Distribution will only be paid if the Directors resolve to pay it and a payment condition does not exist on the Distribution Payment Date.

NAB Capital Notes have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the 'Securities Act'), or the securities laws of any state or other jurisdiction of the United States. They may not be offered, sold or resold in the United States or to, or for the account or benefit of, any 'U.S. Person' (as defined in Regulation S under the Securities Act) absent registration or an applicable exemption from the registration requirements.

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