Financial Planning, Investments, Tax

Franking credit planning premature

Preventative measures to offset the impact of Labor’s proposed ban on franking credit refunds may have been premature and may have created unintended consequences for Australian shareholders.

SuperConcepts technical and strategic services executive manager Phil La Greca said concerns around the proposed ban during the election campaign were acted upon as if it was a “done deal”.

“We saw people adjusting portfolios, selling down assets and rolling money out in preparation for a Labor victory just because it was in a press release and backed by polls, which have becoming increasingly less reliable as predictors of election outcomes,” La Greca said.

“We saw banks and other large companies announcing additional dividends before June 30 to soak up the lost franking credit refund that they wrongly assumed would happen with a Labor victory.”

He also questioned what impact these moves would have on investors, particularly if they pushed people into a higher tax bracket when combined with the franking credit refund they currently receive.

Advisers who encouraged clients to act and clients who did so “are now learning a tough lesson that a press release during an election campaign is not the same as legislation”, he added.

“There was a lot of commentary around preparing for a Labor victory, particularly with the franking credit proposal, and it led to a range of behaviours that must serve as a lesson for understanding the realities of the legislative process,” he said.

“While these would all appear to have been prudent actions, they were predicated on a range of outcomes, namely the election of Labor, then the drafting of a bill to reflect the proposal, then passing of the bill through both houses of parliament in its originally stated form.

“The lesson from this election campaign is that it’s prudent for advisers and trustees to plan around policy proposals but not act until there is more certainty around the final shape of the legislation, which can be a long way from the original proposal.”

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