Companies helping shareholders to get franking credits

Franking credit refunds dividend retirees
A survey of 14,300 investors found retirees living off their investments relied on the current 18-year-old franking credit policy for "a modest quality of life".

While the furious debate around dividend franking credit refunds is continuing, companies are carefully and quietly ensuring that their shareholders are protected as much as possible from the planned change.

Westpac (ASX: WBC) is the latest company to effectively help shareholders to get the maximum bang for their buck out of franking credits by engineering three dividend payments in this financial year.

While Westpac didn’t give any reasons for its decision to bring forward its interim dividend payment date by nine days to 24 June, it is fairly clear that Labor’s plans to stop paying franking credit refunds to self-funded retirees is behind the move.

Three dividends in one year

Westpac has already paid an interim dividend last July and a full year dividend in December, meaning that the change will see the company pay three dividends in the same tax year before the proposed changes can be brought in.

Westpac simply said the change was designed to speed cash returns to shareholders and did not link the payment to Labor policy to end cash refunds on franking credits.

However, that hasn’t stopped campaigners against the franking credit change from calling for more companies to adjust their dividend payments to bring them into the current financial year.

Mark Freeman, the chief executive officer of heavyweight listed investment company Australian Foundation Investment Company (ASX: AFI) said he believed Westpac had made the change with an eye to Labor’s policy.

Other banks to join in?

And he hoped big dividend payers such as NAB and ANZ Bank will join Westpac in bringing forward the interim dividend payment date to early June to ensure that some of their shareholders got the maximum bang for their dividend bucks.

AFIC has been a very public critic of the Labor policy, which would strip most zero-tax rated self-funded retirees of the ability to claim a tax refund for the franked dividends they are paid as a shareholder.

The proposed change would also impact superannuation returns, particularly self-managed funds that only have members in the pension phase, because excess franking credits will effectively expire without being used or refunded.

Self-funded retirees hate the plan

AFIC did a survey of 14,300 investors which found retirees living off their investments relied on the current 18-year-old franking credit policy for “a modest quality of life”.

The survey was sent to about 160,000 investors in AFIC and its related listed investment companies Mirrabooka, Amcil, and Djerriwarh.

Mr Freeman said shareholders did not understand why they were being hit by the policy.

“Franking credit refundability has been in place for 18 years and it forms a key part of their income,’’ said Mr Freeman.

“You are basically taking away income that they use to live off.’

Mr Freeman said living in retirement was expensive and a conservative investment portfolio provided very low yields and not much income.

Labor Treasury spokesman Chris Bowen said that franking credit refunds largely benefit the wealthy and that the cost of refunding imputation credits would “soon outweigh what the Commonwealth spends on schools or child care. That’s unfair and unsustainable.”

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.