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
Millennials believe first home buyers need more support
Australia’s up-and-comers in the housing market say more needs to be done to slow rising house prices. ...Read more
Property
3 in 4 borrowers in trouble are in lockdown: ANZ
Despite offering support, ANZ said freezing home loan repayments will be the last resort, as three in four requests for support stem from NSW. ...Read more
Property
RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attempts by APRA to cool the housing market. ...Read more
Property
Federal incentives are driving more first home buyers into the market
While property prices continue to grow, new research suggests that the government’s current crop of first home buyer incentives is having an impact on this segment of the market. ...Read more
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
Property
What younger Australians are getting wrong about home loans
As young Australians look to fight the odds and take their first step onto the property ladder, more and more are making easy mistakes. ...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Property
Millennials believe first home buyers need more support
Australia’s up-and-comers in the housing market say more needs to be done to slow rising house prices. ...Read more
Property
3 in 4 borrowers in trouble are in lockdown: ANZ
Despite offering support, ANZ said freezing home loan repayments will be the last resort, as three in four requests for support stem from NSW. ...Read more
Property
RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attempts by APRA to cool the housing market. ...Read more
Property
Federal incentives are driving more first home buyers into the market
While property prices continue to grow, new research suggests that the government’s current crop of first home buyer incentives is having an impact on this segment of the market. ...Read more
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
Property
What younger Australians are getting wrong about home loans
As young Australians look to fight the odds and take their first step onto the property ladder, more and more are making easy mistakes. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
