A funds management house has suggested the government has misidentified the parties who will be adversely impacted the most by the policy to prevent dividends with franking credits from being included in corporations’ off-market share buyback arrangements.
“There has been lots of commentary about who benefits from off-market buybacks and the Assistant Treasurer [Stephen Jones] has made a number of statements which I think are misleading,” Wilson Asset Management chief financial officer Jesse Hamilton said.
“[He and others have] made statements that it’s large institutions and investment funds that benefit from off-market buybacks. Unfortunately that’s a misrepresentation of the truth.”
Hamilton revealed Wilson Asset Management has never participated in an off-market share buyback opportunity and other investment managers will not participate in these actions either.
“So it’s broadly to no one’s advantage in our world to participate in an off-market buyback. It’s sometimes industry super funds, big superannuation funds, self-managed superannuation funds,” he noted.
“Unfortunately when you look through even from an industry super [point of view and ask] who are the beneficiaries – it’s everyday Australians, it’s mum and dad investors.
“[You also] generally have self-managed super funds participating in these buybacks.”
According to Hamilton, the government’s other proposed policy to limit the franking credits made available to investors will have an even greater impact on the Australian public.
“The ultimate aim is to stop companies from paying a fully franked dividend if in Treasury’s view any money raised under a capital raising can be linked directly or indirectly to the payment of that fully franked dividend,” he revealed.
“It’s not just special dividends [that the measure will apply to], it’s all dividends.
“And the way the legislation is constructed, it talks about an established practice so businesses that have a history of paying fully franked dividends, any deviation in that history and capital raising more broadly, any amount of capital raised coinciding with the payment of a fully franked dividend can be caught under this legislation.”
Wilson Asset Management chair and chief investment officer Geoff Wilson said his organisation has already received negative feedback about this proposed measure from SMSF clients.
“These people have done the right thing over a long period of time and put money into their self-managed super fund so they don’t have to rely on the government pension and get the benefits from fully franked dividends,” Wilson acknowledged.
“[They’re] losing their franking [credits under this proposal].”
He pointed out the loss of franking credits under the government’s new measure would not be as immediate as it would have been under the policy former Labor leader Bill Shorten put forward in 2018/19, but instead happen over a longer timeframe.
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