Compliance, Regulation, Tax

ASA backs franking credits clarification

Franking credits

The Australian Shareholders’ Association believes the proposal to limit franking credits from capital raisings is unnecessary and requires clearer guidance to avoid unintended consequences.

The Australian Shareholders’ Association (ASA) has expressed its support for a recommendation made by a Senate committee calling on the federal government to provide additional clarification regarding proposed amendments to the franking credits regime.

In a report released late last week, the Senate Economics Legislation Committee recommended the government offer clearer guidance on Schedule 5 of the Treasury Laws Amendment (2023 Measures No 1) Bill 2023, which intends to prevent certain distributions paid to investors and funded by capital raisings from being eligible for franking.

ASA chief executive Rachel Waterhouse said the proposal was unnecessary and could have significant repercussions for investors and shareholders in managing retirement incomes.

“It is not clear to us why Schedule 5 of the bill is required. We believe that Australia has laws in place to tackle intentional tax avoidance and this proposed approach is not required,” Waterhouse told selfmanagedsuper.

“Many Australian shareholders and our members rely on refunds of excess franking credits where tax paid exceeds their marginal tax rate to support their retirement, including their daily living expenses.

“We are [also] concerned about the potential impact on retail shareholders who rely on companies to identify the tax implications of any unusual transactions in a timely manner.

”We are pleased to see that the committee has listened to retail investor and stakeholder concerns and has recommended that the Australian government consider opportunities to clarify Schedule 5 of the bill.”

The ASA has also voiced its concerns regarding the inclusion of an ‘established practice’ test in the amendment. This test aims to determine whether a distribution aligns with the regular distribution patterns of the entity in question.

“We remain concerned about the broadness and potential subjectivity of the tests to determine which transactions will be captured when assessed at some time after the transaction,” Waterhouse said.

“If the definition for the established practice in relation to dividend payments remains loose, we see the risk of an administrative and financial burden for shareholders whose companies inadvertently fall foul of the legislation.

“Taxpayers will be required to amend their tax returns and super funds amend their allocations to beneficial holders dating back to however long it takes for the transaction to be classified.”

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