Franking credits - gone?

Discussion in 'Sharemarket News & Market Analysis' started by Alex McDonald, 13th Mar, 2018.

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  1. Alex McDonald

    Alex McDonald Active Member

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  2. Noobieboy

    Noobieboy Well-Known Member

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    Not too fussed personally. Tax imputation is unique to Australia. Almost no other developed nation has such rules.

    Would I buy shares? Why not? A good company is still a good company regardless if I can get a tax break or not.

    Why everything has to revolve around tax breaks, negative gearing and so on? Decisions in investment shouldn’t be wholly dependent on tax handouts.
     
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  3. Alex McDonald

    Alex McDonald Active Member

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    So for companies to provide maximised total shareholder return, reduce dividend to increase share value so shareholder can sell at a best maximised time, such as retirement?

    Franking credits are a big deal for our current financial strategy as I do want to retire early. I will definitely reconsider current holdings if this was to be passed through.

    Labor will hit:
    Trusts
    Shares
    Negative gearing
    But back militant unions known to shut down key large scale projects.

    It’s like he wants people to not invest and spend earnings week to week, then come retirement live on aged care pension.
     
  4. Noobieboy

    Noobieboy Well-Known Member

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    People adapt. We didn’t come to the position we are by blindly moving in the direction our masters want us to. There is a herd mentality to a point. Eventually one sheep figures a way to do it better and the rest will follow.

    Without franking credits it is likely companies will be reinvesting dividends instead of paying out. Which in long term a much better strategy from capital gains perspective. Compare US to Aus. All things being equal there companies pay little to no dividend and reinvest in themselves. Here all money is paid out = little gain.
     
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  5. Hodor

    Hodor Well-Known Member

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    Had a brief read. Only going to stop people getting a refund from my understanding, not from claiming them. Funny how they say this will hit the big investors, it's the little guy who claims a refund who will be hit and super funds
     
  6. The Falcon

    The Falcon Well-Known Member

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    I would read the article again. The proposal is not to dismantle the imputation system but merely to remove cash refunds for excess franking credits. Effectively minimum tax rate on distributions will be equal to the franking credit.
     
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  7. The Falcon

    The Falcon Well-Known Member

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    This is aimed at sub 30% trust beneficiaries...Labor has railed against trusts distributing to large numbers of low rate beneficiaries in the past, so this fits. The trust distribution minimum 30% tax rate was already flagged a while back. Being selfish here, not bothered.
     
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  8. Observer

    Observer Well-Known Member

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    Exactly, so much care for little guys.
     
  9. wategos

    wategos Well-Known Member

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    The proposal is only to restrict imputation credits in the case where it would result in a tax refund. For most people the credits would still exist and there is no change to dividend taxation. This, together with a phase out of negative gearing is a sound strategy. They've got my vote.
     
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  10. Trainee

    Trainee Well-Known Member

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    This impacts super funds (not just retirees, because every worker contributes to super), businesses run through companies, low income earners.
     
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  11. Vicki S

    Vicki S Well-Known Member

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    It would make a significant difference to SMSF’s retirement income reliant on dividend franking. I imagine in accumulation with tax on contributions and earnings franking credits will still offset the tax payable.

    It will hit all superfund members in pension mode where dividends form a part of the strategy. I suppose then more retirees will qualify for a part pension? That would also be your retail/industry funds etc where pensions use the franking credits.....

    Another change then that directly affects super
     
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  12. Observer

    Observer Well-Known Member

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    How exactly is this a sound strategy as it'll mostly hit low income earners while the wealthier investors will continue getting their tax reduced?
     
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  13. The Falcon

    The Falcon Well-Known Member

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    The rationale I imagine is that the company tax take is undermined with franking refunds. It’s a fair point.

    Australian shares become a lot less attractive in super without franking refunds (15% in accumulation) I wonder what sort of notice / grandfathering will be in place as many holders will have built their asset allocation around super franking refunds. If Labor gets up will probably provide a buying opportunity.
     
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  14. @FruitCake@

    @[email protected] Well-Known Member

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    I think more information is needed but at first glance it does look like it will hurt those with low balances more. I’m always open to be corrected though. Perhaps there needs to be a cap on the refund you can claim? Or an asset based test?
     
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  15. Alex McDonald

    Alex McDonald Active Member

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    Shares being our investment (do not own our PPOR) are in my wife’s name. We definitely get a large refund each tax year as we have 3 young kids and she only works part time. This will hit our bottom line by thousands of dollars.

    We are not ‘big fish’ but caught in the net.
     
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  16. The Falcon

    The Falcon Well-Known Member

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    Big fish won’t be caught in this net
     
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  17. Nodrog

    Nodrog Well-Known Member

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    If I understand correctly the main impact will be felt when the company eventually distributes income to family members. Loss of franking credits refund will bite. But if wealthy enough with large distributions then unlikely to worry you to much.
     
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  18. Nodrog

    Nodrog Well-Known Member

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    It’s retirees with modest savings who will be hurt the most. Wealthier retirees will have their income reduced through loss of franking credit refund but it’s not going to effect their lifestyle. But for many average retirees this change could mean the difference between a comfortable retirement or a very ordinary one!
     
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  19. The Falcon

    The Falcon Well-Known Member

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    Agreed.
     
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  20. Scott No Mates

    Scott No Mates Well-Known Member

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    A new strategy for Super funds is required - they will invest only in companies which offer unfranked dividends (or partially franked) that way the tax payable by the shareholders (esp in pension mode) is minimised ie there is No tax in pension mode so unfranked dividends won't hurt.

    My understanding is that investors will lose any excess franking credits so will have nett zero tax payable but no refund either.
     
    Last edited: 13th Mar, 2018
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