In a letter to shareholders, Wilson Asset Management chairman Geoff Wilson said the government’s recent proposals regarding franking credits and off market share buybacks will weaken the franking system by limiting the distribution of fully franked dividends to shareholders.
“This proposal will limit the distribution of franking credits via fully franked dividends where companies are returning capital to their shareholders through off-market share buybacks and it will mainly impact low-income earners, SMSFs and retirees,” warned Mr Wilson.
“Surprisingly, this is their second attempt since the election to undermine the franking credits system, following a recent draft legislation from Treasury, still under review, which looks to stop companies distributing fully franked dividends that are associated with capital raisings.”
The two changes, he said, are contrary to the Labor government’s election promise not to make any adverse changes to the franking system.
He also has urged investors to share their concerns with their local member of Parliament.
Mr Wilson, who was also a vocal opponent of the franking credit changes proposed by Labor in the lead up to the 2019 election, stated that there “was no doubt that Australians felt as strongly as they did during the 2019 election campaign”.
The recent proposals have sparked fears that further policy changes could be announced which further restrict the benefits that people get from franking credits.
“There is concern about whether this is actually the thin edge of the wedge [of the ALP’s plans] to tackle franking credits or whether they are just particularly targeted measures and that’s where it sits,” said SMSF Association policy manager Tracey Scotchbrook in a recent webinar.
SMSF Association chief executive John Maroney said the body did not support the changes.
“They’ve been brought on without any notice or consultation,” he told SMSF Adviser recently.
“Based on Treasury’s estimates they will have an impact of more than $500 million over the next few years. A lot of that will impact retirees in the SMSF sector so we think it could be quite a significant hit.”
Less than 6 months in, and already 3 broken promises. Bodes well for the next 3 years, doesn’t it……
Is anyone really surprised that the Labor party retraced on their election promise, and had a crack at the Super industry, they tried at the previous election, so was always going to be on the cards
The two changes to franking credit availability are being presented as ‘integrity measures’ which is in line with the administration’s commitment to run the ruler over every line item to find savings etc.
Sneakily, the first announcement was a resurrection of a measure the LNP announced but never proceeded with. That one really does undermine the franking system by limiting companies’ source of capital to make dividends. The recent Budget announcement to align the tax treatment off market buy-backs with on-market buy-backs will have significant impact on companies’ capital management policies. Companies have the second highest tax rate of all entities and being a flat tax, it is effective at collecting substantial levels of tax. Both these policies are back-door attacks on them and as a consequence, their shareholders. The early move on franking credits and the announcement of super tax review provides 2 election promise retraces. We just need a move on negative gearing and the CGT discount and we have the full box and dice from 2019. Talk about leopards not changing their spots.