By John Kehoe


Fund manager Geoff Wilson has written to 130,000 shareholders urging them to lobby members of parliament to stop planned changes to tax rules for franked dividends funded by capital raisings.

Mr Wilson, who spearheaded a campaign against Labor’s past plan to crack down on refundable franking credits at the 2019 election, told shareholders in Wilson Asset Management funds to contact MPs before the October 25 budget.

Treasury forecasts the new “franked distributions and capital raising” measure will raise a relatively modest $10 million a year, compared with Labor’s far bigger proposed clamp down on $11.4 billion of refundable franking credits that contributed to its election loss three years ago.

But Mr Wilson says the latest measure is “inequitable and flawed”.

“If you would like to share your concerns, now is the time to write to your local member of Parliament,” Mr Wilson wrote.

“We have drafted a template letter with some key points to raise.

“If you can, it is important to add your own story, so your local representative can understand the personal impact this legislation would have on you.

“Here is a list of the 151 Australian members of Parliament including many of their contact details.

“We are determined that all voices are heard by the federal government, and we will continue to advocate for retail shareholders and companies who are set to be impacted by this poorly constructed policy.”

‘Trapped’ tax credits

The Albanese government has dismissed Mr Wilson’s latest campaign, arguing the tax change is minor and was originally announced by then Liberal treasurer Scott Morrison in the 2016 mid-year budget update.

The Australian Taxation Office in 2015 became concerned about large superannuation funds pressuring companies to raise capital to immediately be repaid as dividends and attaching excess franking credits “trapped” on the balance sheets of companies.

Industry sources say the ATO is concerned about Tabcorp and other companies previously using the strategy.

When an Australian company distributes profits to shareholders, it can pass on a credit for corporate tax it has paid.

Most resident shareholders that are individuals or superannuation funds can then claim a refundable tax offset equal to the amount of the franking credit.

Sometimes a company may not have enough spare cash to pay a dividend because they are reinvesting profits in the business.

Hence, franking credits for past company tax paid can become “trapped” in the corporate entity.

Treasury and the ATO are concerned about the sale of new shares being used to fund distributions to shareholders, including special dividends.

Never legislated

Gerry Harvey has slammed the Labor government’s plan to backdate the measure to December 2016 when it was originally announced by Mr Morrison, but never legislated.

Shareholders in listed companies including Harvey Norman and Westpac could receive shock tax bills as a result of the proposed retrospective crackdown on franked dividends funded by capital raisings.

Assistant Treasurer Stephen Jones has signalled the government will consider delaying the start date of its crackdown, so it is not retrospective, but won’t back down on implementing the “tax integrity” measure.

Mr Jones has said franking credits on corporate balance sheets were not supposed to be used as an “asset”, through raising capital to immediately pass surplus franked dividends to shareholders.

Fast-growing small and medium-sized companies, including start-ups, will be impacted by the new rules, King & Wood Mallesons lawyers say on Treasury’s draft legislation.

Super funds are big beneficiaries of refundable franking credits for corporate tax paid at rates of as high as 30 per cent because super funds pay a maximum tax rate of 15 per cent.

In a taxpayer alert in May 2015, the ATO said: “A company with a significant franking credit balance raises new capital from existing or new shareholders.

“This may occur through issuing renounceable rights to shareholders.

“Shareholders may include large institutional superannuation funds.”