Franking credits derived from off-market share buy-backs and capital raisings are the target of new reforms proposed by the Albanese government as part of the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023.
Provisions include aligning the tax treatment of off-market share buy-backs undertaken by listed companies with arrangements for on-market share buy-backs.
At present, part of the purchase price of an off-market share buy-back can be reported as a dividend.
The reforms would also prevent certain distributions funded by capital raisings from being frankable, in a bid to ensure arrangements cannot be put in place to release franking credits that would “otherwise remain unused where they do not significantly change the financial position of the entity”.
The legislation was introduced to the parliament on Tuesday (7 March), however, the reforms have since been referred to a Senate committee for further scrutiny.
The Coalition accused Labor of breaking a pre-election promise, with Prime Minister Anthony Albanese assuring voters his government would not reintroduce proposals to overhaul tax arrangements for franking credits — previously put forward by former Labor leader Bill Shorten.
“Now this is a government that promised they were not going to tax franking credits before the election. Another broken election promise,” Shadow Treasurer Angus Taylor said.
The shadow treasurer stated the changes would compound cost of living pressures for Australians, particularly pensioners.
“[Franking credits] are concessions for Australian households, and particularly Australian pensioners, and we know the group that’s going to be hit hardest is those over the age of 75,” he said.
“We don’t need a government that breaks election promises. We don’t need a government that’s putting extra pressure on Australians through extra taxes.
“We need a government that keeps its promises, takes pressure off those cost-of-living pressures that all Australians are facing.”
But Assistant Treasurer Stephen Jones dismissed criticism, claiming the newly introduced proposals were first drafted by the former Coalition government.
“The policy or the proposition that we’re going to put before the parliament over the next fortnight in this area is something that was announced by none other than Scott Morrison when he was the Treasurer and he did it in the 2017 Mid year Financial and Economic Outlook,” he said.
“He announced it, he said that it would apply, in fact, said it would apply retrospectively, but did not get around to legislating it.
“…So, if the Liberal Party and the Coalition are against this proposition, they’re actually against an initiative that was announced by their own government.”
According to Assistant Treasurer Jones, the Albanese government’s latest proposals had “nothing to do” with the franking credit changes put forward by the former Shorten-led Labor opposition ahead of the 2019 election.
He went on to claim the removal of tax exemptions for dividends derived from off-market share buy-backs and capital raisings would mostly impact corporate Australia.
“This is only a measure that applies to off market share buy-backs, which is something that is conducted between large businesses and almost exclusively large institutional investors,” he said.
The bill was currently before the House of Representatives, set to progress to the upper house following a third reading.
