Invest
Cutting dividend refunds could ‘even up the playing field’
Favourable tax treatment of shares investment has influenced Australian investors but proposed dividend policy changes could see asset allocation trends centre, a fixed income expert has said.
Cutting dividend refunds could ‘even up the playing field’
Favourable tax treatment of shares investment has influenced Australian investors but proposed dividend policy changes could see asset allocation trends centre, a fixed income expert has said.
While acknowledging that Labor’s proposed dividend imputation reforms will be painful for many investors, FIIG Securities education and research director Elizabeth Moran said they also have the power to encourage investors to look beyond shares and their attached franking credits.
In March, Bill Shorten and the Labor Party proposed scrapping cash refunds on excess dividend imputation credits.
This means individuals – exempting pensioners, as Labor later added – and superannuation funds would no longer be able to claim cash refunds on excess imputation credits that had not been applied to offset tax liabilities.
Reflecting on the policy, Ms Moran said investors around the world are overweight in shares, noting that Australian investors may have been “influenced” by favourable tax policy to invest in the higher risk asset class.
“[However], by removing the refund, investors are going to be forced to reassess their holdings and without the additional income they have to make a decision more attuned to the risk or the return of the underlying investment,” she told Nest Egg.
“I certainly think, particularly with hybrids, when you remove the franking credit they really are not worth investing in for those investors that can’t get franking credits,” Ms Moran said, observing that should franking credits be cut, hybrids’ performance would echo bonds.
She said bonds, in this instance, are a “far superior investment” thanks to their defined maturity dates and known income, as opposed to bank hybrids, which could see distributions completely scrapped should their conditions not be met upon conversion.
“So, removing the capacity to get a refund on franking will even up the playing field, if you like, for other investments and the will for investors to look further than just the shares and franking credits that are available,” Ms Moran said.
Nevertheless, Ms Moran said she feels for the investors who have set up their portfolios with the expectation of franking credits. For retiree investors in particular, Ms Moran said it does seem “very unfair”.
“But we actually think it is going to help remove what some of the distortions in the market, certainly towards higher risk equities,” she said.
Not only that; it’s an area, along with GST and negative gearing, that could be reassessed as a means to return the budget to surplus, she added.
“$6 billion [the estimated saving] is a lot of money every year, particularly when you put it into context,” Ms Moran said.
According to ATO research, SMSFs hold around 46 per cent of their assets in Australians shares and trusts, with only 6.4 per cent in international shares.
Speaking more broadly, Ms Moran said bonds can be used to anchor portfolios, especially in times of volatility.
To the research director, early February’s market wobble is an example of this. She said most people who choose to invest in both shares and bonds do so because the asset classes generally don’t move together.
As such, a diversified approach serves to even out the returns, so that when shares are flagging, bonds’ returns step up and vice versa, she said.
Property
How property investors can avoid costing themselves thousands
Ahead of the 31 October deadline for lodging tax returns, property investors are being warned to not leave thousands of dollars in the “Australian Taxation Office’s coffers” and take advantage o...Read more
Property
Could Australian property follow NZ’s lead?
Despite facing lockdowns and an election, New Zealand property is moving from strength to strength, with a researcher tipping the Australian market could follow. ...Read more
Property
How a Hobart purchase set this investor up for a successful portfolio
A keen property investor has spoken out about how his purchase in the Hobart market kicked off the start of a successful portfolio. ...Read more
Property
1 in 4 Aussies wants to buy a property now
New research has found that Australians increasingly have their sight set on buying property, with one in four looking to purchase now. ...Read more
Property
Rule of thumb for first-time property investors
Australians looking to break into the property market are being advised to do their research, speak to professionals and use debt in the right way to accumulate assets. ...Read more
Property
Looser lending restrictions: What do they really mean for borrowers?
A relaxation of lending requirements may seem like a win for borrowers, but it’s not all cause for celebration. Like all things financial, the devil is in the details. ...Read more
Property
Hot Property: The biggest stories this week
As Melbourne begins its path out of restrictions, falling state and national borders will again open up Australian real estate opportunities: Here are the biggest property stories from this week. ...Read more
Property
The most common hidden costs in building quotes and contracts
It’s unfortunately very common to blow the budget on building projects. One of the main reasons costs blow out is that there are hidden costs that the consumer may not be aware of from the outset. ...Read more
Property
How property investors can avoid costing themselves thousands
Ahead of the 31 October deadline for lodging tax returns, property investors are being warned to not leave thousands of dollars in the “Australian Taxation Office’s coffers” and take advantage o...Read more
Property
Could Australian property follow NZ’s lead?
Despite facing lockdowns and an election, New Zealand property is moving from strength to strength, with a researcher tipping the Australian market could follow. ...Read more
Property
How a Hobart purchase set this investor up for a successful portfolio
A keen property investor has spoken out about how his purchase in the Hobart market kicked off the start of a successful portfolio. ...Read more
Property
1 in 4 Aussies wants to buy a property now
New research has found that Australians increasingly have their sight set on buying property, with one in four looking to purchase now. ...Read more
Property
Rule of thumb for first-time property investors
Australians looking to break into the property market are being advised to do their research, speak to professionals and use debt in the right way to accumulate assets. ...Read more
Property
Looser lending restrictions: What do they really mean for borrowers?
A relaxation of lending requirements may seem like a win for borrowers, but it’s not all cause for celebration. Like all things financial, the devil is in the details. ...Read more
Property
Hot Property: The biggest stories this week
As Melbourne begins its path out of restrictions, falling state and national borders will again open up Australian real estate opportunities: Here are the biggest property stories from this week. ...Read more
Property
The most common hidden costs in building quotes and contracts
It’s unfortunately very common to blow the budget on building projects. One of the main reasons costs blow out is that there are hidden costs that the consumer may not be aware of from the outset. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
