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Direct Domestic Shares, Tax

Companies support franking credit system

A panel of company chairs has supported the imputation system incorporated in the Australian equity market in the wake of questions raised about it during the recent federal election.

Speaking at the Australian Shareholders’ Association National Conference 2019 recently held in Melbourne, GrainCorp chair Graham Bradley told delegates: “I’m a fan of the system. I think it has great integrity and involves a discipline on management and boards to use their capital wisely.”

Bradley noted there is integrity involved with paying franked dividends because it ensures certain individuals in the investment community do not get taxed twice on the earnings of a company.

“That’s why I was very much opposed to Labor’s policy on not paying franking credit [refunds] to a certain select section of taxpayers, although charities and others who don’t pay would’ve received the credits and that would have breached the integrity of the imputation system, which was not a good policy and not a good thing to do,” he said.

“I like [the system] because it’s better for companies to have the discipline of paying out dividends and then having to go back to their shareholders and ask for capital to make acquisitions or significant expansions and there is a discipline around that which I think is beneficial to shareholders in the long run.

“You contrast that with other countries like America and so on where traditionally dividends have been very small, there have been a lot of retained earnings, and that is a great temptation for management to be profitable with their investments.”

Fellow panellist Integral Diagnostics chair Helen Kurincic also supported the system and rejected any claims it puts more pressure on company boards to pay dividends as opposed to using the earnings for different purposes.

“I think, in terms of your dividend policy, you take into account other factors. So you’re always thinking about the shareholders and the outcomes for them,” Kurincic said.

“So it’s one of the many factors you would consider.”

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