Excess dividend imputation credits
At present, individuals, superannuation funds, and charities can claim cash refunds for excess dividend imputation credits that exceed tax payable. Labor’s policy is that from 1 July 2019 individuals and superannuation funds will be denied such refunds. Income tax exempt charities and not-for-profit institutions (e.g. universities) with deductible gift recipient status will continue to be eligible. The rules will also be modified for pensioners and part-pensioners. Recipients of an Australian Government pension or allowance with individual shareholdings will be excluded from the changes. This includes individuals receiving the Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart, and Sickness Allowance. Self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be excluded from the changes.
The value of refundable imputation credits has increased sharply over the past decade from $1.9 billion in 2005-06 to $5.9 billion in 2014-15. Australia is only one of three countries in the world (along with New Zealand and Malta) with a full imputation system, and is the only country that offers fully refundable franking credits. The Labor Party policy would not affect companies as they are not eligible to receive refunds resulting from excess franking credits.
Implementation of this policy is likely to affect investors’ portfolio allocations as their absolute return from Australian shares may change. Additionally, the policy is likely to incentivise self-funded pensioners to hold their Australian equity investments through large APRA-regulated superannuation funds which can continue to use the excess franking credits.