Save
Franking credits changes cop another lashing
One investment firm has said that, in its current form, the proposed Labor changes to the franking credits regime do not pass the fairness test for Australian investors.
Franking credits changes cop another lashing
One investment firm has said that, in its current form, the proposed Labor changes to the franking credits regime do not pass the fairness test for Australian investors.
At an event in Sydney today, Stephen Bruce from Perennial Value Management Limited said that while an economic argument could be made, the bottom line was that the proposal wasn’t up to scratch.
The proposal, announced over a year ago by shadow treasurer Chris Bowen, is to scrap cash refunds on excess dividend imputation credits with exceptions for pensioners.
“Our view is that you can make an economic argument that refunding franking credits should be stopped and wasn’t part of the original imputations system, but the bottom line is that the current proposals fail both the fairness test, as they clearly treat different classes of investors differently, and they are also likely to be circumvented by those with the largest balances anyhow,” Mr Bruce said.
Mr Bruce, the director portfolio manager for Perennial, said that while the majority of people would be unaffected, it was still unfair.
“The important point in this debate is that three-quarters of people will see no change; it’s the one-quarter that will be affected in a way we think is unfair,” he said.
It is this percentage of people affected that is currently the cause of debate amongst the two major parties leading into the election.
Grounds for debate
Labor claims that the policy is closing down a tax loophole that costs $8 billion a year and only generates more wealth for the already wealthy.
“Much of this goes to high-wealth individuals, with 80 per cent of the benefit accruing to the wealthiest 20 per cent of retirees.
“Labor does not think it is fair to spend $8 billion a year on a tax loophole that mainly benefits millionaires who don’t pay income tax – not when school standards are falling and hospital waiting lists are growing longer,” Labor said in a statement.
The Liberal Party, after a controversial and much-criticised inquiry into the proposal determined that the policy affected more than just the wealthy.
“The ALP’s policy will unfairly hit people of modest incomes who have already retired and who are unlikely to be able to return to the workforce to make up for the income they will lose,” said Liberal MP Tim Wilson, who chaired the inquiry.
Luckily for investors, it seemed that the proposals would not make it into legislation, Mr Bruce said.
“Fortunately at this stage at least, regardless of the election outcome, the senate crossbench would be unlikely to support the proposal, at least in its current form,” he said.
The real world impact
If the proposals did make it through then, it was unlikely to have a huge impact on dividends, which performed strongly without franking, Mr Bruce said.
“I've just highlighted how important dividends are to total return outcomes, and that doesn’t include franking credits.
“With the market trading on a dividend yield of 5 per cent excluding franking, that still stacks up very well compared to fixed income and term deposits.”
A potential solution would to be impose a cap on the credits, Mr Bruce said, which would protect the average balances.
“Maybe one solution is that we will end up with a regime where we do allow a refund of franking credits but with a cap on it, which protects the typical person with an average balance but stops the very wealthy from getting millions of dollars,” he said.
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...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
Home values up 30% (or are they); NFTs taking the world by storm, and why Keating thinks Aussies will be ‘poor’ in retirement
Listen now
Raging floods, the tech stock bubble and the ongoing SG debate
Listen now
Meet the Manager with Trilogy’s Philip Ryan: RBA rates and property price growth
Listen now
The continued property boom, ethical investing and engaging with your super fund
Listen now
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...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
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
