Why Friday could be D-day for ASX dividend shares and franking credits

Investors have until Friday to voice their support or opposition to proposed tax changes relating to franking credits.

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Key points
  • Fund manager Geoff Wilson has implored investors to oppose proposed tax changes affecting ASX dividend shares and franking arrangements
  • Investors have until Friday to submit their opinion on proposed changes relating to off-market share buybacks
  • Wilson Asset Management has offered shareholders a template to use for their submissions 

Veteran fund manager Geoff Wilson, the chair of Wilson Asset Management, has made a final plea to investors imploring them to oppose proposed tax changes affecting ASX dividend shares and franking arrangements.

Earlier this year, the federal Labor government proposed legislation that would stop companies from paying franked special dividends funded via capital raisings.

The legislation also seeks to stop companies from paying fully franked dividends to participating shareholders as part of an off-market share buyback.

The legislation has been open for public comment in recent months.

Submissions regarding the capital raisings and franking component of the legislation closed on 5 October. Submissions regarding the off-market share buybacks component close this Friday.

Wilson has vehemently opposed the changes, saying the cost could 'could run into the billions'.

a group of people in business attire gather around a computer in an office environment with expressions of concern as they try to nut out the answer to a challenge they are facing.

Image source: Getty Images

What did Wilson say to shareholders?

In a letter to shareholders of his listed management companies (LICs) yesterday, Wilson said the proposed new rules carry "significant unintended consequences".

He encouraged investors to submit their views to the federal treasury department.

He even offered them a template to use if they can't find their own words. It contains some of the fund manager's key points of disagreement.

The template states the proposed changes to franking credits "undermine a system that has supported Australian companies and investors through more than three decades of economic stability and growth".

It says the system "has encouraged Australian companies to invest in and pay corporate tax in Australia and emboldened Australians to invest locally".

Changes could see franking 'dismantled beyond repair'

Wilson said the changes were "poorly constructed" and he wanted to work with the government:

We are eager to work with the current government on behalf of our shareholders to prevent the unintended consequences of these changes to the Australian franking system before it, and its enormous benefits, are dismantled piece by piece beyond repair.

We are currently preparing our submission, which we look forward to sharing with you when it is complete.

Shareholders were given a link to Wilson Asset Management's submission regarding the proposed changes to franking credits and capital raisings.

Why is the government doing this?

The Federal Treasurer, Jim Chalmers, reckons the new rules are "a very minor measure".

He says it simply closes a loophole used by companies to pay out excess franking credits on their books.

The central argument is that franking credits should only apply to dividends from realised profits.

The S&P/ASX All Ordinaries Index (ASX: XAO) closed down 0.86% on Wednesday.

The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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