Calculation of Bank Hybrid Franked Distributions
An example of how to calculate distribution rates and distribution amounts for a Bank Hybrid where distributions are fully franked. Distributions are only payable subject to the satisfaction of the Distribution Payment Conditions. Franking Credits are generally taken into account in calculating distributions on Bank Hybrids.
How to calculate a distribution
| Distribution rate calculation (%) | |
|---|---|
| BBSW | = 1.00% per annum |
| Margin | = 3.00% per annum |
| Face Value of Bank Hybrid | = $100 |
Step 1 – Determine the equivalent unfranked distribution rate
| The equivalent unfranked distribution rate |
|---|
| = BBSW + Margin |
| = 1.00% + 3.00% |
| = 4.00% per annum |
Step 2 – Calculate the cash distribution rate
The equivalent unfranked distribution rate is then adjusted down to take account of the Franking Credits to be attached to the distribution to arrive at the cash distribution rate:
| Cash distribution rate |
|---|
| = equivalent unfranked distribution rate × (1 – tax rate) |
| = 4.00% × (1.00 – 0.30) (assuming a corporate tax rate of 30%) |
| = 2.80% per annum |
Step 3 – Calculate the cash distribution amount and Franking Credits an investor will receive
| Cash distribution amount ($) | |
|---|---|
cash distribution rate |
2.80% per annum |
multiplied by the Face Value of each Bank Hybrid |
× $100.00 |
multiplied by the number of days in the relevant distribution period (assuming 90 days for a quarterly distribution period) |
× 90 |
divided by the number of days in the year |
÷ 365 |
cash distribution amount for each Bank Hybrid |
= $0.6904 |
Franking Credits ($)
| Franking Credits per cash distribution amount for each Bank Hybrid |
|---|
| cash distribution amount × corporate tax rate for each Bank Hybrid 1 – corporate tax rate |
| $0.6904 × 0.30 0.70 |
| = $0.2959 |
Result
In total, the investor receives in dollar terms for each Bank Hybrid with a face value of $100:
$0.6904 as a cash distribution amount |
$0.2959 as Franking Credits |
In this example, for an investment of 500 Bank Hybrids, the investor receives:
cash distribution amount |
$0.6904 × 500 = $345.20 |
franking credit amount |
$0.2959 × 500 = $147.95 |
The ability of an investor to use Franking Credits, either as an offset to a tax liability or by claiming a tax refund, will depend on each investor’s individual tax position. Any benefit will only be received after an investor’s tax return is lodged.