In March 2018, the Australian Labor Party (ALP) released a plan to end cash refunds for excess franking credits for individuals and superannuation funds, aiming to save $11.4bn over four years. In today’s blog, Wilson Pateras’ Mark Forte unpacks the Australian Labor Party’s proposed changes, highlighting how Wilson Pateras can support you through these changes.
What are franking credits?
When certain Australian companies pay income tax on their taxable income, they distribute their after-tax profits by way of franked dividends to shareholders who then pay tax on these dividends. Franking credits help prevent Double Taxation as it allows Australian shareholders to use company tax already paid to reduce their tax liability. Come tax time, these franking credits are valuable to taxpayers as any tax credits that are not used (excess franking credit) is reimbursed in the form of a cash refund from the Australian Tax Office (ATO).
What are Labor’s proposed franking credit changes?
The Australian Labor Party (ALP) has announced that if it wins at the next election it will reform the dividend franking credit system, removing cash refunds for excess franking credits. The change will start from 1 July 2019 and won’t apply to cash refunds for charities and not-for-profit institutions.
Who will this affect?
This may result in a significant loss of cashflow. It may be that investors will have to re-think their investment strategy and asset allocation to potentially reduce the impact of this loss of cashflow. At present, these cash refunds go to low income earning individuals, pensioners and SMSFs.
How can Wilson Pateras support you through these franking credit changes?
Wilson Pateras recommend sitting down with your accountant or financial advisor to consider how these changes may impact you. Presently, these consults are focused on education, awareness and preparedness. Depending on your personal circumstances, there are strategies that can be adopted once these changes take place, post-election. To learn more or book your free consultation, get in touch with Mark Forte and the team at Wilson Pateras.