Franking claims denied
Government officials have dismissed claims by investors that the Albanese government is looking to destroy the franking credit system, saying that changes to the system will target only a small number of corporate transactions that involve “contrived” tax arrangements.
According to a recent Senate inquiry, equity capital raisings by Tabcorp and Harvey Norman were undertaken to distribute excess franking credits from their balance sheets, allowing investors such as superannuation funds to reduce their tax bills.
The proposed changes, which would see franking credits disallowed for dividends that are funded by equity raisings and a ban on streaming franking credits to low-tax investors through off-market share buybacks, would save an estimated $600 million over four years, with the majority coming from the latter.
Despite this, investors such as activist Geoff Wilson and Brisbane stockbroker Chris Burrell have opposed the changes, arguing that it could cost the government billions in lost revenue and investments.
Shaw and Partners' Head of Equities, Anthony Wilson, also expressed concern that the changes could disadvantage small and emerging companies without regular dividend payouts, while finance academics Christine Brown and Kevin Davis criticised the government's capital raising changes as misguided.
However, Treasury officials have stated that the refund of excess franking credits to investors on low or zero tax rates will remain unchanged.
“What we’re concerned about are arrangements that are contrived, including the cost to government revenue that is greater than intended by the operation of the [dividend] imputation system,” Treasury deputy secretary Diane Brown said.
“Fundamentally, the issue that we were concerned about at the time was that franked dividends were paid in an artificial and contrived circumstances when there was no change in the net asset value of the entity,” ATO deputy commissioner Rebecca Saint said.
Assistant Treasurer Stephen Jones has stated that the government is committed to the reforms, but is open to amendments that "keep the faith with the original objectives."
However, Liberal Senator Andrew Bragg has argued that there is no case to change franking credits and that Canberra should "get out of corporate capital management."
While some investors have expressed concern over the proposed changes to the franking credit system, officials have reassured the public that the changes will only affect a small number of corporate transactions involving “contrived” tax arrangements.
Despite opposition from some investors, the government says it remains committed to the reforms, although it is open to amendments that align with the original objectives.