Save
Dividend imputation reform could have ‘unintended consequences’
Should Labor’s proposal to reform dividend imputation policy be realised, investors who don’t change their asset allocation are “essentially disadvantaging themselves”, a finance academic has said.
Dividend imputation reform could have ‘unintended consequences’
Should Labor’s proposal to reform dividend imputation policy be realised, investors who don’t change their asset allocation are “essentially disadvantaging themselves”, a finance academic has said.
Speaking on a University of Sydney Business School briefing, Andrew Ainsworth, senior lecturer of finance discipline, said it’s clear that franking credits are valued.
“For investors that can no longer get the cash refund for these unutilised credits, if they don't make a change to their asset allocation, well they're essentially disadvantaging themselves,” he said.
His comments follow the Labor Party’s proposal to abolish the cash refunds paid to non-taxpaying shareholders in place of dividend imputation credits.
Fellow commentator, associate professor of finance Graham Partington, said the “rational response” would be for investors to move out of Australian stocks.
However, the behavioural response could be a different matter.
“The other point there is maybe they'll start moving into stocks that aren't paying fully franked dividends if they're not getting that,” Mr Ainsworth said.
“Even within the market I think there will be some shifts.”
He said the “unintended consequences” of a change could extend to effects on prices, the cost of capital as well as changing asset allocation trends.
“It's highly likely that investors will want to change their investment portfolios. This leads to a series of questions, if they're going to be selling, who's going to be buying?” he questioned.
“Is it other domestic investors, is it foreign investors? What's going to happen to the price of stocks in the market?”
Mr Ainsworth argued that if the estimated saving is $8 billion, there’s a question around who will buy in the case of a sell-out and the impact this will have on the cost of capital.
“Are prices going to fall? Is that likely to increase the cost of capital for companies and if they do sell to other domestic tax paying investors, what's going to be the proportion of franking credits that are going to be saved? If other investors are buying these stocks and utilising these credits then maybe this $8 billion isn't going to be as big as the government thinks,” he said.
Mr Ainsworth said these questions will need to be considered should Labor win the next election and enact the new system.
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure. ...Read more
Tax saving
Government rebuffs regional allowance and tax concession reform
A review’s findings into the viability of area tax concessions and payments for regional and remote Australians has had its recommendations shut down by the same government who requested the report...Read more
Tax saving
Penalties for tax fraud in Australia
Public taxes are used to fund government projects in relation to health, defence, infrastructure and many other national and local projects that require public funding. ...Read more
Tax saving
Disaster relief payments receive tax-exempt status
The Australian government has made disaster relief payments to bushfire-affected individuals and businesses tax-exempt while extending tax-free financial support to NSW Rural Fire Service volunteers. ...Read more
Tax saving
Are your franking credits working?
Here’s what you need to know about franking credits and how they work. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure. ...Read more
Tax saving
Government rebuffs regional allowance and tax concession reform
A review’s findings into the viability of area tax concessions and payments for regional and remote Australians has had its recommendations shut down by the same government who requested the report...Read more
Tax saving
Penalties for tax fraud in Australia
Public taxes are used to fund government projects in relation to health, defence, infrastructure and many other national and local projects that require public funding. ...Read more
Tax saving
Disaster relief payments receive tax-exempt status
The Australian government has made disaster relief payments to bushfire-affected individuals and businesses tax-exempt while extending tax-free financial support to NSW Rural Fire Service volunteers. ...Read more
Tax saving
Are your franking credits working?
Here’s what you need to know about franking credits and how they work. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
