AMCIL Managing Director Mark Freeman and Chief Financial Officer Andrew Porter address the Federal Government’s proposal to stop companies paying shareholders fully franked dividends that are funded by capital raisings.
Shareholders would be aware of draft federal legislation to prevent companies from undertaking a capital raising and then immediately returning the capital via a franked dividend to shareholders. This proposal follows on from a tax alert that the Australian Taxation Office issued in 2015 and an announcement by then-Treasurer Scott Morrison in 2016. However, it was never legislated.
We raise several points. Firstly, this is supposed to be targeted legislation. The explanatory memorandum clearly states that if you issue capital in the usual course of business or pay dividends in the usual course of business, this won't apply to you. The legislation appears designed to apply where smaller companies are raising capital to release trapped franking credits. However, the legislation and accompanying documentation is loosely worded, so some people have concerns.
Secondly, the legislation is designed to be retrospective back to when the announcement was originally made in 2016. Retrospectivity in taxation legislation is rarely, if ever, a good idea.
Thirdly, given the widespread concern about proposed changes to franking credits that were made during the federal election of 2019, people are keen now to ensure that public opinion is heard regarding any more potential changes, noting the budget changes to off market buy-backs.
AMCIL has not made a specific response to this issue. However, we are members of a wider industry association – the Listed Investment Companies & Trusts Association – which has, and its response focuses on two key areas: the looseness of the language in the legislation, and the retrospectivity.
Nonetheless, we continue to be very diligent on this issue.
We understand the importance of franking credits to investors, and we’re watching this space closely.