SMSF Association backs franking credit recommendation

The peak body for the self-managed superannuation fund sector said that it welcomes the Senate economics legislation committee’s recommendation that the federal government review the legislative amendments that target franked distributions funded by capital raisings.

Namely, on Friday, the economics legislation committee handed down its report on Treasury Laws Amendment (2023 Measures No. 1) Bill 2023.

While the Senate committee report recommended that Schedule 4 concerning off-market buybacks be passed unamended, it said the government should consider opportunities to clarify the proposed changes in Schedule 5.

The amendments — Schedule 5 of the Treasury Laws Amendment (2023 Measures No.1) Bill 2023 — aimed to prevent certain distributions funded by capital raisings from being frankable, but the SMSF Association feared it would affect legitimate commercial activity and competitively disadvantage profitable and growing companies.

SMSF Association chief executive Peter Burgess said: “This is a positive outcome, recognising what we argued in our submission — that the proposed amendments needed to be much more targeted.

“The Senate committee’s decision now gives the government the opportunity to clarify the amendments to ensure they appropriately target the identified behaviour and not create a situation where legitimate business behaviour is unfairly penalised.

“As we argued in our submission, there are many legitimate situations where the dividend paid by a company would not pass the proposed established practice test and as a result would be ineligible for franking.”

Examples, the SMSF Association said, could include newly established companies that have no established record of paying dividends and companies operating in volatile industries where dividends may only be paid irregularly.

Mr Burgess added that in many cases, raising debt may not be possible or the best option, so an equity raising is often the preferred option.

“We therefore recommended that the amendments in Schedule 5 should not apply in situations where a company had legitimately earned profits and sought to distribute those profits to its shareholders — a point specifically identified in the Senate’s report,” he said.

“We look forward to working with the government to ensure the amendments in Schedule 5 are fit for purpose by preventing tax avoidance via the inappropriate release of franking credits while not hurting normal commercial activity.”

In March, the government was accused of backtracking on franking credits, with shadow treasurer Angus Taylor saying the changes would compound cost-of-living pressures for Australians, particularly pensioners.

“[Franking credits] are concessions for Australian households, and particularly Australian pensioners, and we know the group that’s going to be hit hardest is those over the age of 75,” he said.

“We don’t need a government that breaks election promises. We don’t need a government that’s putting extra pressure on Australians through extra taxes.

“We need a government that keeps its promises, takes pressure off those cost-of-living pressures that all Australians are facing.”

However, Assistant Treasurer Stephen Jones has dismissed criticism, saying the government’s latest proposals have “nothing to do” with the franking credit changes put forward by the former Shorten-led Labor opposition ahead of the 2019 election.

“This is only a measure that applies to off-market share buy-backs, which is something that is conducted between large businesses and almost exclusively large institutional investors,” he said.