Likely shareholder revolt against proposed franking credit laws


The Albanian government’s proposed change to postage credits, if it becomes law, will only bring in $10 million a year. This leads to the question; why bother, given that Labor’s proposed changes to postage credits were one of the reasons it lost the 2019 election?

The bill released by the Treasury for comment last month prevents companies from paying their shareholders franked dividends that are funded by capital raisings that exceed their profits.

David Richardson, senior researcher at the Australia Institute, said the estimated $10 million in savings from the change was a distraction. What the government probably wants to avoid is releasing the $430 billion that corporations have in their postage accounts.

Federal Treasurer Jim Chalmers and the Albanian government risk a backlash from shareholders if the retroactivity of a proposed new franking credit law is not dropped Credit:SMH

This figure is from the Australian Taxation Office as of June 30, 2020 – the latest figure available and an increase of $36 billion on the previous year. The value of postage credits stuck on corporate balance sheets is growing rapidly. 12 years ago it was $218 billion.

Franking credits compensate shareholders for the tax corporations pay on profits. Usually, only part of a company’s profits are paid out to shareholders as dividends, with the rest kept to grow the business. However, corporation tax is paid on all profits, and franking credits are therefore ‘trapped’ on the corporations’ books.

Labor policy when last opposed was to make postage credits non-refundable, a move that would have hit the better-off pensioners in the hip pocket, as most of them have no tax debt , or only small debts, against which to use franking credits. The change would have meant a sharp reduction in the income they receive.

Many self-directed super funds, particularly those in retirement, are heavily weighted to large, dividend-paying Australian stocks – more than is prudent from a portfolio diversification standpoint – largely because the credits of postage are refundable.

Some companies have funneled franking credits to shareholders – those shareholders include Australian superannuation funds – by raising new equity and paying special dividends with credits attached to the money raised.


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