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RSM Bird Cameron has called for the dividend imputation system to be left alone, saying its removal would undermine the government's push to lower costs for superannuation investors.
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Leave dividend imputation alone, says RSM Bird Cameron
01 May 2015
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Dividend imputation has been debated vigorously since the government released the Tax Discussion Paper last month, which posed several questions around the value of the system, including whether the dividend imputation system is continuing to serve Australia well as our economy becomes increasingly open, and whether the taxation of dividends could be improved.
In response, Evan Tsipas from RSM Bird Cameron Financial Services said the removal of dividend imputation could have several side effects for business and the economy, all of which the government must consider.
“Upon removal, corporations are likely to slash dividends, which would be double-taxed and of less value to Australian investors. We could also see an increase in corporate debt issued designed to reduce tax as corporations can generally deduct interest," he said.
“New debt issued by corporations could be used to embark on share buybacks, new investment and mergers and acquisitions. However, from a macro perspective we need to consider whether more debt would increase systemic risk.
“The second- and third-order effects of the removal of dividend imputation need to be studied carefully.”
According to Mr Tsipas, encouraging companies to reduce dividends and increase leverage may leave the Australian economy in a worse position to handle a future crisis.
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“Opponents of the current system may argue it favours the wealthy who have a large exposure to Australian shares. It is true that wealthier Australians who own Australian shares will be more greatly impacted by the removal of the dividend imputation system," he said.
“However, if the average Australian superannuation investor is tens of thousands of dollars worse off over a 30-year period upon removal of dividend imputation, they could experience a more meaningful drop in living standards, as compared to wealthier individuals who can better cope with the elimination of franking credits. These new proposals are in direct conflict with the desired outcomes of recent reform.”
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