A bill to curtail the use of franking credits connected to capital raisings by a company and the use of off-market share buybacks received royal assent yesterday.
The Treasury Laws Amendment (2023 Measures No 1) Bill passed on 16 November after the House of Representatives agreed to minor amendments requested by the Senate.
The bill was approved with a vote of 80 in favour and 59 against in the House of Representatives, after the Greens backed the bill and Independent Senator David Pocock successfully sought an amendment to ensure small and family business succession planning would not be affected by its passage.
The expansive bill amends the Income Tax Assessment Act 1997 to prevent certain distributions that are funded by capital raisings from being frankable, in addition to aligning the tax treatment of off-market share buybacks undertaken by listed public companies with the tax treatment of on-market share buybacks.
During the second reading of the bill, Assistant Treasurer and Financial Services Minister Stephen Jones argued the previous tax treatment of allowing listed public companies to buy back shares off-market effectively allowed them to acquire their own shares at discount prices, subsidised by the taxpayer.
In respect to schedule 5 of the legislation to render distributions funded by capital raisings unfrankable, Jones previously made clear the bill aims to close a loophole exploited by certain companies that would raise capital without a commercial purpose to fund special franked dividends.
The genesis of the bill lies in a 2015 ATO taxpayer alert (TA 2015/2), which identified cases where large companies had engaged in fully underwritten capital raisings in order to distribute franked dividends to shareholders.
The regulator noted at the time that some of these arrangements were possibly being used to manipulate the franking credit system and may be in contravention of taxation anti-avoidance measures.
The successful passing of the legislation comes after the SMSF Association previously raised concerns the bill would go beyond the scope of its remit and capture many genuine practices that were unrelated to tax avoidance.
