Australian companies that pay dividends to their shareholders are taxed under what’s known as the ‘imputation’ system, because the tax is imputed (or assigned) to the shareholders in the form of franking credits attached to the dividend payments.
Investors can use franking credits to offset tax payable on all forms of income (not only dividends) and taxable net gains.
What some people don’t know is, you do not necessarily need to submit a tax return to receive a refund on your franking credits.
You can claim a refund on your franking credits dating as far back as 2001.
Even if you choose to reinvest your dividends, you can still claim a refund of any franking credits.
We recently had a client come in to see us, who is retired and receiving a tax-free income stream, and no longer submits tax returns. Part of their portfolio consists of shares, and they have been receiving franking credits for many years and had not sought a refund. We were able to get them a lovely refund of $16,000 dating back to 2002. Not bad for a client who walked in to see us with a Centrelink enquiry, and walked out with a $16,000 refund on its way to them!