Govt moves to tighten franking credit rules

Mike Taylor

Managing Editor/Publisher, Financial Newswire

16 September 2022

Less than four years after changes to franking credits contributing to costing the Australian Labor Party (ALP) Government at the 2019 Federal Election, the Albanese Government has opened consultation on legislation which would prevent the distribution of ranking credits with respect to capital raisings.

The Treasury has opened the consultation around the exposure draft of the Treasury Laws Amendment (Measures for a Later Sitting) Bill 2022 with the objective of the legislation being to prevent companies from attaching franking credits to distributions to shareholders made outside or additionally to the a company’s normal dividend cycle.

Under the proposed legislative changes, both direct and indirect recipients of affected distributions will not be entitled to a tax offset and the amount of the franking credit will not be included in the assessable income of the recipient.

The proposed legislative changes also make clear that a distribution will also be subject to to withholding tax.

The exposure draft states that the amendments are an integrity measure aimed at preventing entities from manipulating the imputation system to obtain inappropriate access to franking credits.

“They will specifically prevent the use of artificial arrangements under which capital is raised to fund the payment of franked distributions to shareholders to enable the distribution of franking credits,” it said.

The consultation arrangements around the proposed legislative changes close on 5 October.