SMSF Association sees hope on franking credits

The Government’s lack of an outright majority in the Senate has handed critics of its latest franking credits legislation a minor victory with the Senate Economics Legislation committee recommending the approach be reviewed.

The Senate Committee’s recommendation has been welcomed by the SMSF Association with its chief executive, Peter Burgess, describing it as positive outcome and consistent with his organisation’s submissions on the issue.

“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,” he said.

“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 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.

“The Association also argued that raising debt may not be possible or desirable for companies and that an equity raising was often the preferred option as it freed up cash from previously earned reinvested profits and enabled the company to avoid the costly and undesirable need to sell assets.

“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.

“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.”