Coalition Senators' Dissenting Report

Labor’s broken promise

1.1Schedules 4 and 5 of Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 (the bill) constitute a blatant broken election promise by the Albanese Labor Government.[1]

1.2In January 2021, the then Opposition Leader Anthony Albanese promised not to make any changes to franking credits.[2] This was after the Australian people resoundingly rejected Labor’s assault on franking at the 2019 Federal Election.

1.3On 30 March 2021, Anthony Albanese told ABC Radio that Labor ‘won’t have any changes to the franking credits regime’.[3]

1.4The then shadow Treasurer, Jim Chalmers, said on 17 January 2022 that when it came to tax changes, ‘we won’t be doing franking credits … I couldn’t be clearer than that’.[4]

1.5On 4 March 2022, when asked about franking credits on ABC Radio Perth, Anthony Albanese told listeners that Labor was ‘not touching them’.[5]

1.6Nevertheless, in September 2022 Treasury launched a consultation process on exposure draft legislation that would give effect to a measure to prevent the distribution of franking credits where a distribution to shareholders is funded by capital raising activities.[6] The Treasury received more than 2000 submissions opposing the proposed changes from individual investors.[7]

1.7In the October 2022 Budget, the government announced changes to the imputation system which would align the tax treatment of off-market share buy-backs with on-market share buy-backs.[8]

1.8Franking credits have incentivised individual investment in Australian companies. In return for their investment, shareholders receive a proportion of the post-tax profit as a tax credit. They are issued on after-tax profits and protect Australians against double taxation.

1.9The proposed established practice test in Schedule 5 of this bill holds that if a company raises capital and doesn’t have an ‘established practice’ of issuing franked dividends, that company cannot make franked distributions in the future. In effect, the test is capturing the whole private economy in its new and novel test.

1.10The Albanese Government is trying to raise taxes to cover their new spending since the 2022 Federal Election.

1.11Over a hundred submissions from experts and constituents opposing these changes have been submitted to this inquiry, on top of the thousands that submitted to the Treasury consultations. In the interests of transparency, there was frustration that submissions to the Treasury consultations have not yet been made public, with Professor Christine Brown and Professor Kevin Davis submitting that ‘good public policy decision-making deserves public exposure of the arguments and views of those seeking to influence public policy’.[9]

1.12The changes proposed in this bill are a sneaky underhanded attack on the franking system. Rather than outright abolish dividend imputation, the Albanese Government is intent on poisoning the franking regime through legal uncertainty and empowered discretion from the Australian Taxation Office (ATO).

Importance of dividend imputation

1.13Coalition Senators believe the dividend imputation system has had a number of positive economic effects on Australia’s economy by reducing double taxation, promoting investment in Australian companies and providing income for self-funded retirees. The Association of Independent Retirees emphasised in their submission that self-funded retirees ‘receive franked dividends or distributions from these shares or managed fund units that contribute significantly to their retirement income’.[10]

1.14Laying out the number of benefits of the imputation system, ProfessorGrahamPartington submitted:

The imputation system reduces the cost of capital, which stimulates investment and hence employment. It reduces the tax benefit of using debt, which results in less debt being issued and an increase in equity raising. Thus, there is a reduction in corporate leverage, and this is particularly beneficial when economic conditions deteriorate. Under imputation there is an incentive to pay out higher levels of dividends. As a result, companies have to raise more capital externally. Consequently, company management are more exposed to market discipline. Also, because shareholders can recover corporate tax paid via imputation credits there is less incentive for company management to engage in corporate tax avoidance.[11]

1.15Importantly, Wilson Asset Management emphasised that the:

Australian franking system has encouraged Australian companies to invest in Australia, pay tax in Australia and emboldened Australian shareholders to do the same, in turn creating more local jobs and ownership of Australian companies by Australian citizens.[12]

1.16In their submission, Burrell Stockbroking and Superannuation (BURRELL) argued that ‘the franking system is not only equitable but leads to higher dividends which averages 4–5% for Australian listed companies and this provides more adequate levels of income for retirees’.[13]

1.17During the public hearing, Mr Chris Burrell explained to the committee why Australia’s dividend imputation system is superior to the ‘classical system’ in other countries:

We've got the franking system in Australia, … and we've got the classical system in the US. In the classical system, the company pays tax, the dividends pay and the shareholder pays it again. The net result of that is that the dividends in the US are about two per cent, whereas here they're four per cent or 4½. The US companies therefore hold that money back, use it to overpay their executives and make high-price takeovers—a lot of which, the research suggests, are not value additive.[14]

1.18Mr Lawrence Banks, a constituent residing in Sydney, stressed the importance of franking credits in his experience as a self-funded retiree:

I have personally relied upon franking credits and participated in off-market buybacks, which are vital in providing income for self-funded retirees and small business owners, particularly at the time of the small business owners' own retirement.[15]

1.19Coalition Senators believe the franking credit regime is a crucial part of Australia’s tax system and has important flow-on incentives for Australian companies. It forms a vital source of income for many Australians.

1.20Consequently, Coalition Senators oppose the changes proposed in Schedule’s 4 and 5 of the bill. Schedule 5 in particular will bring about a myriad of unintended consequences. The Committee has received submissions and public evidence from a broad range of stakeholder including academics, industry groups, asset managers, legal experts and constituents who have expressed overwhelming opposition to Schedule 5.

Schedule 5: Franked distributions funded by capital raisings

Undermining investment in small and medium enterprises

1.21The proposed changes to franking credits in Schedule 5 of the bill will discourage investment in Australian companies. The new tests for unfrankability introduce serious risks and uncertainty for companies who wish to make franked distributions. The Corporate Tax Association suggested that there would be great uncertainty for companies ‘who have no history of payment of dividends, such as where a company is recently listed’.[16] It could also affect cases where special dividends are paid before or after a capital raising, and in cases of partially underwritten dividend reinvestment plans (UDRPs)’.[17]

1.22Introducing such uncertainty to franking credits could have severe consequences for Australian companies and investment. Shaw and Partners provided the Committee with data following the abolition of a similar system in the United Kingdom:

It was called the advanced corporate tax. It was abandoned in '99 after 26 years in operation. From the stats that I've read, in 2000, the UK pension funds and insurance companies owned 39 per cent share of total UK stock market. Fast forward to 2020 and that figure had fallen drastically to just four per cent. For me, that gives a prime example where people are not providing an incentive to invest domestically.[18]

1.23Wilson Asset Management has stated that with Schedule 5, ‘large Australian companies with mature franking account balances are put at an advantage over small to medium sized entities’.[19] The Australian Shareholders Association told the Committee that the uncertainty of the changes will discourage portfolio diversification and push investors towards larger companies:

We see that the uncertainty will mean that when a shareholder has an option to invest in various different companies—and they should be diversifying their portfolio in the share component of that portfolio—they will hug to certain types of companies. They already overly rely on banks and their strong franking to produce ongoing and reliable income. I think that they will avoid those companies where the dividend is not sure or they have, perhaps, a cyclical income.[20]

1.24If enacted, the measure will have serious unintended consequences on Australian companies and could interrupt legitimate capital management activities undertaken by corporate entities in the standard course of the business cycle. The ASA advised the committee:

A cyclical company pays dividends when things are good and holds back cash flow when the cyclical markets are down. However, the ATO can come back and say, 'No. This particular transaction was not a franked dividend, because there was some capital associated with the raising.' Two separate events are being pulled together. The company is generating, for example, retained profits—it has paid the tax; it has the right to distribute those funds—and the capital raisings may be separate and related to the cyclical nature of cash flows. That uncertainty … means, I think, that people will avoid those companies…[21]

1.25The knock-on effect of this is decreased investment in small and medium enterprises (SMEs), particularly growth stocks, as they become less attractive to investors. Furthermore, these companies will be affected as they rely more on capital raisings since they are more sensitive to cash flow.

1.26On this point, Dr Ian Langford submitted that SMEs rely heavily on continued access to capital throughout their business cycle as they struggle to generate the scale and capacity required to compete against foreign... companies, many of whom enjoy significant levels of support from their own governments’.[22] By restricting a company's ability to raise capital or make franked distributions, Australian companies become less competitive.

1.27Professor Robert Nicol held the view that this measure overlooks the needs of small companies, and disincentives investment:

The case of small successful companies transitioning from establishment losses and still needing capital to grow, seems to have been overlooked. Such companies will want—even need-- to reward shareholders with a dividend—which newfound profits will allow to be franked—and, at the same time, want to raise fresh equity to pursue growth options. Such companies will be very limited in their access to debt…

I am concerned that the incentive for Australian equity investors to invest in Australian companies will be reduced. One of the key factors in where to invest will change, quite likely to the detriment of Australian companies seeking funds.[23]

1.28The Law Council of Australia shared this view and stated that SMEs would be disproportionately impacted by the proposed amendments:

The measure would have a greater impact on small- to medium-sized business where tax is paid by small growth companies needing to raise cash for funding and growth. The new measures may restrict the ability to raise capital with a greater focus on raising extra debt.[24]

1.29The Law Council also highlighted that smaller companies in particular, do not have regular dividend practices, and therefore Schedule 5 will constitute a costly restriction on these companies as they are more likely to fall foul of the ‘established practice’ test.[25]

1.30King & Wood Mallesons submitted that SMEs, start-ups and growth companies funded by venture capital may make distributions after initial capital raisings, and that the proposed measure goes beyond the mischief identified in the Taxpayer Alert TA 2015/2 which originally prompted the Treasury to draft this legislation.[26]As a result, King & Wood Mallesons indicated that the measure could apply to distributions made by such companies as they do not have an ‘established practice’.[27]

1.31The Tax Institute argued that SMEs that do not have a normal practice of paying regular distributions are likely to fall foul of the established practice test ‘very easily’, and that it could interrupt common capital practices of private companies.[28]

1.32The SMSF Association agrees with this assessment, arguing that a ‘company which reinvests its profits and raises capital to pay a dividend is very likely to have an unfrankable distribution as a result of the tests in the bill.[29] This would expose shareholders to double taxation, despite the fact these companies would be engaging in legitimate and normal business operations.

1.33It is entirely normal for companies to reinvest profits instead of holding them as cash for future dividends, particularly companies that are in volatile industries or growing quickly. This is standard cash flow management.

1.34At the public hearing, Shaw and Partners attested that Schedule 5 would disproportionately affect small and medium companies, noting also that they would be ‘the growth companies where a lot of retail investors and institutional investors get their [excess return]’.[30] As a result, this would push investors towards larger more established companies and away from SMEs. Mr Anthony Wilson stated:

Companies that do have a pre-existing distribution policy will be favoured. I think the proposed measure introduces a commercial bias to not pay dividends outside of periodic policy.[31]

1.35The Explanatory Memorandum even outlines that ‘if an entity has never previously made a distribution, then the entity will not have a practice of making distributions’.[32] Noting this, Wilson Asset Management have said that:

… if you're a small growth company and you've never paid a frank dividend before and this legislation comes in, you automatically trigger failing the established practice test on point 1.[33]

1.36During the public hearing, Treasury was asked whether Schedule 5 would disproportionately advantage larger, longer established companies. Their response indicates they think it could:

Larger, listed companies have dividend policies. It is their policy to pay a regular dividend. For this act's schedule 5, which talks about whether you have a regular practice of dividends, it is probably more the case when you're a large, listed company where you've adopted a dividend policy… If they are paying dividends in accordance with that policy, they would more easily be able to satisfy or would in fact satisfy the regular payment test.

A smaller company may not… small, unlisted companies that have yet to develop that kind of maturity where they have a dividend policy probably wouldn't or may not have a regular dividend policy…[34]

1.37In an answer to question on notice, Treasury indicated that new startups may not be able to satisfy the test.[35]

1.38Particularly in relation to growth sectors like renewable energy, Wilson Asset Management have warned that these changes to franking credits could:

…discourage companies and shareholders from investing in Australia, significantly increasing the cost of capital for Australian companies (both big and small), leading to a reduction in local manufacturing, less local jobs and the long‐term ownership of Australian growth companies in this sector.[36]

1.39It is economic sabotage to introduce a policy which would disadvantage small growth companies and discourage investment in these companies in Australia. The huge legal uncertainty about the status of franked distributions given past practices will act as a disincentive. If the measure is to operate as intended, Burrell Stockbroking has contended it would ‘rely upon the ATO to afford appropriate benevolent rulings’.[37]On this basis alone, the Senate should oppose the proposed changes to franking credits within Schedule 5 of the bill.

Companies will increase corporate leverage

1.40During the inquiry, the Committee received extensive evidence suggesting these changes to franking rules would increase corporate leverage in Australia. Stakeholders advised the committee that since smaller companies have less access to debt financing, they would be disadvantaged. There were also concerns that these changes could affect dividend reinvestment plans (DRP’s).

1.41DRPs allow for shareholders to have their dividends reinvested into new shares in the company. When some shareholders elect to take the cash dividend, the company can use proceeds from shareholders who chose to buy shares to pay that dividend. This is an underwritten dividend reinvestment plan (UDRP) and is a standard cash-flow management tool utilised for the purposes of growing capital investment.

1.42In its evidence to the committee at the public hearing, the Australian Banking Association (ABA) expressed concern that Schedule 5 could ‘inhibit the use of DRPs, which are commonly used by banks to maintain levels of common equity tier 1 capital required by [the Australian Prudential Regulation Authority] APRA.[38]

1.43The ABA noted the importance of DRPs and UDRPs for banks to meet their capital requirements according to APRA prudential standards.[39] Referring to Example 5.2—Underwritten dividend reinvestment plan funds special dividend in the Explanatory Memorandum, the ABA noted that it is implied ‘that banks should not use DRPs or UDRPs if there is a risk that the dividend will not materially change the company’s financial position’.[40]

1.44This is a sizable and unacceptable uncertainty that threatens a crucial market-standard method of capital raising. On this point, Mr Tim Sherman from the Law Council of Australia commented:

…it's quite unclear to me from the legislation whether the effect of this legislation might be to deny franking credits on dividends that are paid to give effect to dividend reinvestment plans’.[41]

1.45If companies want to avoid the risk of their distributions being unfrankable, then they will resort to debt financing to obtain liquidity instead of capital raising. Professor Robert Nicol, among other stakeholders argued that this could lead to less company tax paid through deductions on interest and offshoring:

Since there is nothing to prevent companies obtaining the desired liquidity through issuing debt—and interest is tax deductible—the likely result is, ceteris paribus, less company tax paid and higher corporate leverage, with the attendant risks. This option will be more available to large companies and, given the lack of depth in the domestic corporate bond market, these monies will be sourced in large measure, and interest paid and taxed, offshore.[42]

1.46In their joint submission, Chartered Accountants Australia and New Zealand (CA ANZ) and CPA Australia noted that the uncertainty created regarding capital raising would incentivise financial decision-making towards debt financing, which would increase tax deductions on interest expenses.[43]

1.47It is a basic economic principle in capital markets that if the cost of capital increases, then investment will decrease and the aggregate capital stock in the economy will decrease. This has flow-on effects for company tax revenue. The Law Council emphasises the benefits of dividend imputation when it comes to capital costs:

... the ability of a company to provide fully franked dividends with certainty reduces its cost of capital. It reduces the incentive for companies to undertake debt raising…[44]

1.48Wilson Asset Management expressed considerable concern in relation to the impact that debt raising would have on companies and argued that the measure:

…will also stop companies over a long period of time from doing what they should be able to do, which is decide whether they use equity or debt to fund their business and pay distributions. So it's actually stopping companies from using equity to do it, and making companies just borrow money.[45]

1.49As a result of the cruel test this legislation proposes, and the uncertainty it creates, small growth companies are forced into choosing between two risky options, Wilson Asset Management stated that this ‘then places companies into a conundrum - take on debt funding to pay franked distributions or risk their ongoing ability to raise capital entirely’.[46]

1.50Evidently, for larger more established companies, debt financing is not as risky. If companies are disincentivised from raising capital, the ASA warned the committee about the proliferation of more debt financing:

There is a potential that they will favour debt to a greater degree, which of course provides them with a tax deduction and reduces their ongoing franking, but also increases their risk. And when I say risk, that is the risk of insolvency at some point in time.[47]

1.51If this schedule results in an increase in corporate leverage, then this proposal could bring about serious unintended consequences to Australia’s capital markets, particularly in times of crisis such as COVID-19, as Shaw and Partners has explained:

It will likely increase costs of capital and lead to higher leverage, higher volatility and ultimately more potential capital losses for investors. … In times of crisis, higher leverage, which the proposed legislation encourages, will likely lead to high volatility in the listed market. In worse circumstances, it will result in large capital losses for both retail and institutional investors. I've no doubt there would be several companies that would have been put into administration during the macro-economic shocks of the GFC and the COVID-19 pandemic if this legislation had already been in place.[48]

1.52The proliferation of debt-financing would be a perverse development in Australia’s corporate environment. By introducing this uncertainty with-respect-to franking in schedule 5, the cost of capital would increase as debt-raising becomes a more attractive finance option. The measure creates an ‘inappropriate commercial limitation’ according to King & Wood Mallesons, who advise that ‘increased levels of debt will also result in greater debt leveraging and inherent risk’.[49]

1.53In its evidence to the committee, representative from Treasury confirmed that companies could fund franked dividends via debt financing and that this decision was ‘a matter for the company’. Nevertheless, they conceded that companies could make the decision to take on more debt as a result of this measure but argue it would ‘be a very small proportion’.[50]

1.54However, Treasury essentially agreed that in effect, the measure could increase the cost of capital, noting that ‘there would be a disincentive to fund [franked distributions] in that way, because the cost of raising debt is very different from the cost of raising equity’.[51] If the cost of capital increases because debt financing is less legally risky than capital raising with-respect-to financing, then companies must either stop funding distributions or be forced to take on debt which the Treasury concedes costs more than equity. The choice between increasing debt or decreasing investment is not something the government should be putting to capital markets.

Franking credits will be trapped in takeover bids

1.55The committee heard evidence with-respect to Schedule 5 and its potential impact on takeover transactions and the pre-takeover distributions to shareholders. On this matter, the committee was alerted to the example of Newmont Mining’s bid to takeover Newcrest Mining during the public hearing.[52]

1.56As part of the binding scheme implementation deed, ‘Newcrest will be permitted to pay a franked special dividend of up to US$1.10 per share on or around the implementation of the scheme of arrangement.[53] It has been argued that Schedule 5 could interrupt this transaction based on ‘the timing of any capital raised versus the distribution’.[54]

1.57During the public hearing, BURRELL contended the established practice test could capture this arrangement and that Newcrest shareholders would not have certainty with-respect-to that distribution:

In the Newmont case, how can the Newcrest shareholders know whether or not Newmont is or isn't doing some capital raising and whether or not somewhere down the track the tax office is going to say, 'Oh, that dividend wasn't franked'? There's no history of paying a dividend in that circumstance. In the sale of the business, there's no history of paying a dividend at the end of the sale of the business.[55]

1.58If this legislation is enacted, and that uncertainty risk is introduced, it could be that ‘presumably Newmont won't pay it, so the franking credits will just get left in the company and wasted’.[56] The purpose of the special dividend is to allow for Newcrest to ‘extinguish its remaining franking credits’, legitimately earned based on corporate tax paid, which would otherwise be lost in the course of the take-over.[57]

1.59BURRELL advised that franked dividends paid in the course of a takeover could be deemed unfrankable if the ‘target [company] repays the borrowings from which the dividend is sourced using funds supplied by its new parent’.[58] This would mean a franked distribution would be captured even though the capital raising was undertaken by what was then a separate entity. This could mean that even after the dividend payment and takeover completion, events can ‘retrospectively’ impact upon what shareholders were offered in the bid, and that distribution could be unfranked.[59]

1.60Noting the example of Newcrest/Newmont, BURRELL told the committee that:

…this example will very commonly apply to takeovers of private companies, and buyouts of shareholder blocks in that context… This is likely a significant unintended consequence of the wide drafting and a material change in how franking is understood in Australia. All sales of the private companies involving a dividend payout of accumulated profits to vendors and recapitalisation of working capital etc. by the buyers are likely unfairly impacted by this proposed legislation.[60]

1.61When asked about this example of takeovers being impacted, legal experts who appeared before the Committee agreed:

Senator BRAGG: Okay. Another witness this morning gave evidence that it was possible that the Newcrest-Newmont transaction, where the Newcrest board was proposing to pay out franked dividends to the shareholders, would be at risk. Does that sound like a fanciful or a credible comment?

Mr Byrne: It sounds credible and it's certainly not fanciful.

Mr Sherman: Yes, I agree.[61]

1.62A significant and devastating consequence of Schedule 5 could then be that franking credits are trapped within companies taking part in takeover transactions. It’s incredible that this measure could be so poorly drafted that it would capture such a large amount of standard and routine transactions and capital management arrangements that are crucial in a dynamic economy.

1.63The Committee has heard that this would result in reduced merger and acquisition activity, as ‘a lower share price and therefore lower valuation will reduce the accretion of any takeover’.[62]

So we'll see lower growth, less takeover activity, fewer fees, a smaller local finance and broking industry, less research coverage on the small-cap growth stocks, fewer informed investors and less tax being paid in Australia.[63]

1.64Witnesses pointed to their own experience dealing with large transactions which they believe could be impacted by this legislation. Mr Justin Byrne from the Law Council of Australia referred to an example of a transaction amounting to $4.2 million which they believe would be ‘off the table’ if this legislation was passed.[64] This alone amounts to almost half of Treasury’s estimated $10 million per annum revenue gain arising from the measure. These franking credits would simply be stuck on a company’s balance sheet as a result.

1.65The example represents a standard picture of business growth and capital management. An entrepreneurial business lacks equity and needs funds from its shareholders. Shareholders will naturally expect a return on their investment. As a result of this equity, this new business is able to invest and generate growth and eventually turn a profit. This profit is taxed at the corporate tax rate which generates franking credits, which in this case was $4 million worth. This success makes it an attractive investment to new investors:[65]

In terms of the investor shareholders seeking a return on their investment by way of franked dividend:

(1)The company does not have any cash at bank from which to fund a franked dividend.

(2)For various commercial reasons the company may not be able to borrow funds from a bank in order to fund the franked dividend.

(3)If new investor shareholders subscribed for shares in the company, and the cash were used to fund a franked dividend to the initial investor shareholders, the distribution is likely to be unfrankable due to proposed section 207-159.

As a result of proposed section 207-159 a dividend to the initial investor shareholders is highly unlikely to occur.[66]

1.66When asked about the modelling for the proposed measure, Treasury confirmed that they had done no modelling had been undertaken to establish Schedule 5’s effect on financing decision-making.[67]

Decreasing corporate tax revenue

1.67Schedule 5 is framed as a ‘tax-integrity’ measure. However, if the measure results in less franked distributions, less investment, a higher cost of capital and more debt, then the ultimate consequence would be less corporate tax revenue as companies are incentivised to engage in more tax avoidance and offshoring. The higher cost of capital will mean that both corporate profits as well as corporate tax will consequently decrease.

1.68Numerous witnesses who appeared before the Committee expressed this concern. Introducing uncertainty to franked dividends could have flow on-effects for other forms of taxation. For example, Professor Christine Brown stated:

…it's not clear to me that the uncertainty created in the capital markets won't lead to loss of government revenue in other areas.[68]

1.69Academics noted that there is substantial evidence that suggests that dividend imputation has reduced tax avoidance in Australia. This is because companies have less incentive to use tax avoidance strategies. ProfessorGrahamPartington stated:

From the shareholders’ point of view, the good news that corporate tax payments have been reduced is accompanied by the bad news that there will be fewer franking credits available for distribution.[69]

1.70If companies are disincentivised from making franked distributions, because they could be unfranked, then more franking credits are locked up in companies and tax avoidance will increase.[70] If franking credits become risky or unusable, then firms will decide to reduce corporate tax entirely.[71] Taking on more debt to reduce measurable profit and, could be one way of minimising corporate tax . As highlighted by submitters including Professor Graham Partington, there is nothing stopping large companies from making debt-financed distributions in this legislation:

Obviously, if you feel that you're going to lose your franking credits, why save the rest? 'Let's not pay the tax in the first place. Let's ratchet up our tax avoidance activities.' One very easy way to do that is to simply increase corporate leverage, thereby reducing corporate profits, thereby reducing corporate tax—simple.[72]

1.71The Law Council of Australia made a similar assessment of Schedule 5 regarding corporate taxation, submitting:

The measure would increase the desire to pay less Australian tax, which may be exacerbated if the company has large existing franking reserves. Currently, there is an incentive for companies to maximise Australian tax paid on their global operations to facilitate the benefits (dividends and selective share buy-backs) to shareholders.[73]

1.72Given this new disincentive to pay tax, Wilson Asset Management has calculated that ‘corporate Australia as a whole, would only have to look to minimise or defer their tax paid by 0.14% in year one in order to make forward estimates of $10 million per year from Schedule 5, uneconomical’.[74]

1.73Wilson Asset Management said that if this reduction is in the order of 2.5 to 5%, then each year it ‘would lead to a $1 billion to $2 billion reduction in revenue to the Federal Budget’.[75] This estimate is likely to be higher based on Parliamentary Budget Office (PBO) analysis. According to the PBO analysis, a reduction of 1% in company tax paid would result in a revenue loss of around $1.3 billion per annum over the forward estimates.[76] A 5% reduction would result in revenue loss of about $6.4 billion per annum over the forward estimates.[77] These reductions could come about as a result of offshoring and reduced corporate profits induced by Schedule 5.

1.74A reduction of 10% in tax revenue, could result in a loss of revenue of over $12 billion per annum according to the PBO.[78] This value is not too dissimilar to the value of franking credits paid out by SMEs (annual turnover of less than $50 million) in 2019-20, which was $12.1 billion.[79]

1.75As Professor Partington alongside other stakeholders submitted, ‘there is a clear risk of substantial adverse outcomes and losses to revenue that exceed the gain’.[80] The primary objective anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 is to identify threats to tax revenue. Not only is the projected gain of $10 million per annum a minuscule gain, but the uncertainties and behavioural effects borne out by this measure could in and of itself represent a huge revenue risk.

The Budget costing is wrong

1.76The background of this measure lies in a 2015 Taxpayer Alert from the ATO, announcing that they were reviewing arrangements of capital raisings funding by franked distributions.[81] The ATO was concerned that certain arrangements were in breach of anti-avoidance rules.

1.77A measure was subsequently announced in the 2016-17 MYEFO proposing legislation which purported to address these concerns.[82]

1.78During the 2016-17 Additional Estimates, Treasury disclosed that the $10 million revenue gain per annum forecasted in 2016-17 MYEFO was from ‘the estimated value of franked distributions funded by capital raisings, and is based on the level of activity occurring prior to the ATO’s Taxpayer Alert, TA2015/2 (issued on 7 May 2015)’.[83] The 2016-17 MYEFO measure was subsequently not proceeded with.

1.79Treasury has claimed that the current legislation was costed again ‘when the legislation was introduced, and that was for the purpose of costing the impact of the change of the start date’.[84] This start date was altered from the original commencement date of 19 December 2016 which was flagged in the 2016-17 MYEFO and the Treasury’s 2022 exposure draft of Schedule 5.[85]

1.80In April 2023, the PBO was asked to cost Schedule 5 and provide the methodology and assumptions used by the Treasury to make the costing. The Treasury blocked this disclosure to the PBO.[86] They refused to provide assumptions and methodology on the basis that such information was protected under taxpayer confidentiality and could not be made available to the requesting party.[87]

1.81During the public hearing, Treasury said that the data used to cost schedule 5 was from 2016, which was based on activity prior to the Taxpayer Alert2015/2:

It had to reflect the observable data that we had from 2016. That was looking at the activity that had been brought to the attention of the ATO preceding the issuance of their alert.[88]

1.82In a 2021 Reportable Tax Positions Schedule Findings Report by the ATO, it was found that arrangements targeted by the 2016-17 MYEFO measure ‘‘are no longer prevalent’’ based on risk identification processes and assurances programs, and that this gave the ATO ‘‘confidence we don’t have a non-disclosure risk’’.[89]

1.83Even back in 2017, the Treasury said ‘the ATO is aware of one company that distributed franked dividends which were funded from capital raising activities of the type identified in Taxpayer Alert TA 2015/2, in the 2015-16 financial year’.[90] Referring to two companies he believed engaged in those activities around that time, Professor Kevin Davis told the Committee that ‘‘the suggestion of $10 million, I think, was probably—we don't know—based on what might have happened as a result of those particular two companies.’’[91]

1.84Importantly, in its evidence to the committee at the public hearing, Treasury confirmed on multiple occasions that with regard to the supposed mischief targeted by Schedule 5 that, there currently ‘‘aren't any cases of this.’’[92]

‘‘It's a 2016-17 measure, yes. And then we looked further for the costing of the deferral, to see if there'd been any new activity, which there hadn't been.’’[93]

1.85There hasn’t been any activity since 2016, yet the costing of this measure in 2023 is identical to the 2016-17 MYEFO costing, which was based on 2016 data.

1.86Since the Treasury did not provide costing assumptions to the PBO, the Senate subsequently ordered the Minister representing the Treasurer to table the assumptions and methodology behind the costing in the Senate on 15May2023.[94]

1.87The response to the Senate’s order from Stephen Jones, Minister for Financial Services, was given in coordination with an answer from Treasury in response to a question on notice from the committee. No actual documents from the costing were provided. In response to the Senate’s order, the Treasury insisted that the $10 million per annum costing ‘‘arises from the imputation system operating as intended in absence of the contrived arrangements’.[95]

1.88This is a bizarre contradiction of Treasury’s evidence given when fronting the committee during the public hearing, where officials said:

It is a costing. It's not a forecast of activity, or it's not an estimate of the activity should there not be a measure in place.[96]

1.89And yet, in the same response to the Senate Order, they said ‘‘there has been minimal activity associated with franked distributions funded by capital raising observed by the ATO since the measure’s announcement in 2016.’’[97] During the public hearing, Treasury informed the Committee that they ‘‘were advised there was barely any of the behaviour targeted by the original measure.’’[98]

1.90Even more strongly, the Treasury later said in answers to questions on notice that there was ‘‘no confirmed activity linked to franked distributions funded by capital raisings’’ since 2016.[99] And yet they decided to persist with the identical costing regardless, which is a static figure:

Treasury’s costing of the 2016-17 MYEFO measure assumed that companies would respond by ceasing to distribute franked dividends that are directly funded by capital raisings, consistent with the policy intent.[100]

1.91It's apparent that the 2023 costing is essentially identical to the 2016 costing. If the costing was based on anticipated activity from 2016 onward, and since 2016 no actual activity has occurred, then applying the 2016 costing to 2023 measure defies basic logic.

1.92Treasury’s responses to the committee’s questions on this matter have been inconsistent and contradictory.

1.93It is nonsensical to suggest that the costing could amount to $10 million per annum with activity occurring, but also $10 million per annum without any such activity. The revenue gain is supposed to come from correcting ‘‘contrived activity’’, and yet that activity is said not to occur. It seems that Treasury is making it up as they go along.

1.94Furthermore, the costing is based on 2016 data when the market dynamics were completely different. Professor Kevin Davis told the committee that he considers the costing ‘‘completely subjective. It’s just a guess’’.[101]

1.95Noting the Newmont takeover of Newcrest, BURRELL suggested that the special dividend proposed in the bid, which could be captured by the measure, could by itself exceed the $10 million costing:

If the shareholders don't get that dividend, I suspect there'll be more than $10 million lost in that one transaction. But it's actually lost to individual shareholders, who would otherwise get the franking credit.[102]

1.96Most witnesses couldn’t understand the logic of the costing. In response to a question on notice, the Law Council of Australia said that based on the transactions that could be captured by the measure, ‘the franking credits involved in those transactions would, in my experience, far exceed $10 million per annum.’[103]They further indicated that given the wide scope of the measure, if taxpayers fell foul of it, ‘‘the franking credits involved would likely be … many multiples of $10 million in aggregate.’’[104]

1.97This is the disconnect between the Treasury costing and the reality of the proposed legislation. The $10 million per annum estimate is a fictional figure based on 2016 data, reconstituted in 2023 when the targeted mischief of the measure is no longer occurring according to Treasury’s evidence.

1.98As indicated by numerous stakeholders, if the measure is passed as broadly drafted as it is, it would capture a vast amount of capital management activity beyond the mischief that the measure is supposedly designed to target. Naturally, companies will be wary not to fall foul of the measure. Consequently, they will seek to avoid paying the equivalent amount in corporate tax to compensate for being blocked from making franked distributions.

1.99In the Budget Analysis by the PBO, this could manifest in the form of a government revenue loss in the order between $1.4 and $6.4 billion per annum.[105] If the reduction in tax revenue is 10%, then it could be around $13 billion per annum.[106]

1.100Treasury has confirmed that they have not modelled any behavioural effects, noting that ‘only first-round effects were considered as part of this costing. The costing did not incorporate any second- and third-round impacts’.[107] Nor did they model the possible impacts on corporate decision making.[108]

There is no problem to solve

1.101The Treasury has already confirmed that there is no current activity occurring in the market that this measure is supposedly designed to stop. In fact, the ATO already found in 2021 that the 2015 ATO Taxpayer Alert had been effective. Wilson Asset Management told the Committee that it’s unclear what even the purpose of this legislation is:

‘‘The tax office in 2021 concluded that these instances, that they highlighted in 2015, 'are no longer prevalent in the large public and multinational business population'. In terms of the legislation itself, I think the question of 'What are they actually trying to legislate?' needs to be asked. If these instances in the tax office's views no longer exist, what are we actually legislating? The legislation itself goes way beyond what the taxpayer alert identified back in 2015.’’[109]

1.102Professor Christine Brown told the Committee there is ‘‘no economic logical justification for schedule 5’’, given it creates ‘‘a huge amount of uncertainty and complexity in the capital management for companies’’ for a very small purported gain of $10m per annum.[110]

1.103King & Wood Mallesons agreed that with respect to the broad scope of the measure, ‘‘the penalty is not proximate to the mischief.’’[111]

1.104During the 2023-24 Budget Estimates hearings, Treasury even admitted that they needed to be careful with the legislation and they need to make sure that it doesn’t stop companies paying franked dividends. However, this is exactly what the evidence from industry suggests will happen if the bill is passed.[112]

1.105It will be up to the ATO to make rulings on this matter if the bill is passed, which Professors Christine Brown and Kevin Davis suggest would interrupt corporate efficiency for no reason:

When first mooted in the 2016 MYEFO, it was suggested that such practices might involve a cost to revenue of (only) $10 million pa. This complicated piece of legislation requires the ATO to arbitrate on which of a company’s interactions with the capital market to manage capital structure are allowable. By creating uncertainty it would hinder the efficiency of corporate capital market funding. To do so for such small tax revenue seems, to say the least, silly.[113]

1.106Other academics who appeared before the committee agreed that the measure was not worth the risk:

... the claim[ed] benefit of $10 million a year under schedule 5 is insignificant in the scheme of things and I fear will almost certainly be negative as companies and investors adapt and change.[114]

It just seems to me that for $10 million it's just not worth taking the risk of the very considerable cost that could arise. I would point out that it's not really a matter of how much is raised by this legislation initially or even in the future. What really matters is what managers and investors expect might happen, because that, of itself, is sufficient to change corporate behaviour.[115]

1.107The measure also goes beyond the mischief identified in the 2015 ATO Taxpayer alert, which was a targeted alert. Schedule 5 captures a much broader range of activity. Wilson Asset Management has explained the specific activity that was targeted by the taxpayer alert at the time:

In those instances in 2015 that were identified it was a specific, 'You're paying this dollar amount and we're underwriting capital raising for broadly the same dollar amount.' I think with Tabcorp there might have been a $6 million difference—$230 million versus $236 million—but it was broadly the same amount that was looking to be paid out.[116]

In 2015 there was an ATO taxpayer alert as outlined in our proposal using Harvey Norman, Vita Group and Tabcorp as specific examples of corporate behaviour the tax office and the government was looking to limit. The proposed legislation in Schedule 5 from the government however is not limited to these specific examples and behaviours that were identified at the time and it goes beyond a simple tax integrity measure as it has been communicated.[117]

1.108The Tax Institute, an expert body in this space, considers the scope defective:

We consider that the scope of this measure, as well as the associated compliance burden and economic costs imposed by this measure exceed the perceived risk which it seeks to address.[118]

1.109In attempting to solve a problem that doesn’t exist, Schedule 5 will put greater power in the hands of the ATO and add further compliance costs on companies. The Law Council of Australia remarked that many smaller companies will not have the resources to do this:

A narrowly expressed gateway, which depends heavily on the manner in which the ATO administers the provisions, is not appropriate or good tax practice. It does not take into account the fact that many companies, particularly smaller companies, do not have relevant and regular dividend practices. The measure is most likely to impose unnecessary restrictions on those companies.[119]

1.110The Law Council has said that the complexity and scope of the measure is entirely out of proportion given the purported revenue gain, thus it should not proceed:

Given the uncertainty, administration and cost that is likely to be imposed on taxpayers, the Taxation Committee submits that the measure is not appropriate. The current Treasury estimates are that the new measure is set to raise only $10 million a year. The complexity of the measure and the associated economic benefit would be entirely disproportionate to the perceived mischief and the new obligations that would be imposed on taxpayers.[120]

1.111Given the uncertainty, there will likely be a need for the ATO to provide guidance on this measure if it passes. It’s a basic principle of legislative drafting, that any proposed changes to reform the law should be designed to improve clarity where it is currently lacking. CA ANZ stated that introducing such a poorly drafted measure would not improve the legal status quo and would force companies to seek ATO rulings:

In our opinion, schedule 5 doesn't really achieve much in terms of efficient administration. ... To our mind, this is just going to say: 'Well, we're not sure. This is very broadly drafted’ … We're going to get a private ruling from the ATO before we raise that capital and then pay out a dividend.' That is not too different from what the situation would be at the moment if you had concerns about the taxpayer alert.[121]

1.112Smaller companies will not have the resources to seek rulings in the same way larger companies do. During the public hearing, there was commentary on the possibility of ATO guidance to clear up any uncertainty baked into Schedule 5. If the measure is so defective that post-legislative clarity is already needed, then the measure should simply not pass. The Tax Institute thinks that this should not be the role of the ATO, and that if the Schedule 5 is passed:

… it would fall on the ATO to actually clarify that, and the ATO needs to use general powers of administration et cetera to give effect to what the purpose of the provisions are. That doesn't give the community certainty; that actually forces the ATO to stand in the shoes of the lawmaker, which we don't think is appropriate.[122]

1.113By introducing this defective legislation, the government is wasting the Parliament’s time and putting the onus on the ATO. This is despite the fact that the ATO guidance has already worked as an effective deterrent in stamping out any of the mischief that was occurring prior to the 2015 Taxpayer Alert. Based on his experience, Mr Andrew Clements of King & Wood Mallesons said that the taxpayer alert ‘‘has been very effective’’ and ‘‘we've not seen, in practice, those arrangements being replicated for the last eight years…’’[123]

1.114The Law Council also stated that the 2015 ATO Taxpayer Alert has been successful at deterring certain behaviour:

I think an alert is effective at deterrence, and that's my understanding of why the ATO uses it—to get out there in the market quickly, to deter and to send a message to business that they can't do this otherwise the ATO is going to come looking at those particular transactions. My understanding is that it has been largely successful in deterring the larger end of town from doing this.[124]

1.115Furthermore, the Law Council of Australia indicated there is already enough in legislation— in the form of anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936— to appropriately deal with the mischief:

Currently, without these proposed provisions, one would think that there is enough in the legislation already in terms of the anti-avoidance rules. There are numerous anti-avoidance rules that one has to refer to undertake any sort of transaction that we've been talking about today and then credit streaming, part IVA anti-avoidance et cetera. So one would have thought that one of those would catch this already.[125]

1.116Ultimately, the drafting is so broad and captures so much activity, that it’s highly unclear what exactly Schedule 5 is supposed to target. The Law Council further emphasised:

…in our view, it's not evident exactly what is the mischief that's being targeted in these provisions. The last point then is that the drafting therefore suffers the same flaw in that it is too broad, because I don't think there's been enough definition on what the exact mischief is.[126]

1.117Regarding the proposed changes, Mr Justin Byrne, Chair of the Taxation Committee stated ‘the Law Council’s view is they’re not necessary. I’m not aware of why they’re needed.[127]

1.118As stated earlier, Treasury has already said that none of the activity targeted by Schedule 5 even occurs anymore, and that the costing is based on ancient 2016 data from when the Taxpayer Alert was put out by the ATO in 2015. If the government is unable to clearly state what circumstances of mischief these franking measures are designed to stop, then it’s reasonable to assume that this is by design.

1.119By injecting uncertainty and risk into the law with-respect-to franking credits, Labor can poison dividend imputation without having to out-right abolish it, as it wanted to in 2019.

Schedule 4: Off-market share buy-backs

A tax increase on Australians

1.120Schedule 4 of the bill which seeks to align the tax treatment of off-market share buy-backs undertaken by listed companies with the tax treatment of on-market share buy-backs is an unnecessary tax increase on Australians. It will disproportionately affect, and have a negative impact on Australian charities.

1.121The measure is forecasted to raise $550 million over the forward estimates.[128]

1.122Responding to a question on notice, Minister Stephen Jones said that $400 million will be a result of increases to superannuation fund tax receipts.[129] Furthermore, $150 million will be a result of increases to personal income tax receipts.[130]

1.123Nevertheless, Minister Jones has erroneously claimed that this ‘‘is not a tax increase’’.[131]

1.124Mr Robert Oser, a Sydney constituent and retiree who appeared before the Committee, argued that this supposed tax integrity measure was a cover for increasing taxes:

The proposed changes and other restrictions imposed over recent years, under the disguise of integrity measures and anti-avoidance, damage the economic benefits of the imputation system. The only reason I could find for introducing schedules 4 and 5 is to try to collect more tax revenue.[132]

1.125The Law Council of Australia expressed concern that Schedule 4 would lead to an unnecessary penalty in the form of wasted franking credits, and should be managed through current channels:

In schedule 4, the proposal to align off-market share buybacks for listed companies with on-market buybacks results in a penalty by way of wastage of franking credits. Rather, the mischief associated with buybacks should be clearly identified and then regulated by change to the current practice, being the ATO's administrative guidance contained in PSLA 2007/9.[133]

1.126There was also commentary about how a buyback should be defined. King & Wood Mallesons contended that the definition is up for debate and that it can resemble a dividend distribution. They said that ‘‘if it's a distribution, it should be frankable.’’[134]

1.127Constituents who attended the public hearing strongly opposed the proposed amendments within Schedule 4, noting it could result in a ‘‘retrospective franking debit’’, which could force them to amend their tax returns going back years.[135]

1.128BURRELL noted that the ‘‘proposed legislation seeks to provide that no part of an off market share buy-back can be taken to be a dividend,’’ and were of the view that this drafting is far too broad:

This provision seems an over reach and likely to lead to unintended consequences. The explanatory memorandum said it is to bring off market buy backs into line with on market buy backs. The only reason that no part of a market buy back is a dividend, is that the company declares no dividend and the transaction from the viewpoint of the seller of the shares on market is a capital transaction.

… we are not convinced that the legislation is necessary or good legislation as it seeks to achieve an unstated result by obscure means.[136]

1.129Professor Robert Nicol informed the committee that Schedule 4 would have welfare implications for individuals and low tax-paying entities such as charities:

The principal beneficiaries of these buy-backs where the capital value is set below the clearing price are non or low-tax paying entities—individuals, super funds and charities. (As a former director of a non-taxed entity—a university residential college—I have experienced the value of these credits first-hand.) The denial of franking credits will hit some of these entities particularly hard with possible implications for welfare support.[137]

1.130Self-funded retirees rely on these buybacks to generate income in retirement, as the ASA told the committee:

A number of ASA members find an off-market share buy-back provides them with an efficient way to sell shares and generate cash flow to fund their living expenses as a self-funded retiree. There is no brokerage to pay, and it is easy to administer as a single transaction.[138]

1.131Noting this, Wilson Asset Management submitted that schedule 4 ‘‘will also negatively disadvantage low-income earners by inhibiting companies from undertaking fully franked off-market buy-backs.’’[139]

1.132Wilson Asset Management argued that it is inaccurate to claim that this is an institutional issue for fund managers who engage in these buy-backs:

Rather, it is retirees and low-tax investors, including charities who are prepared to sell their shares at a lower-than-market price in order to benefit from a fully franked distribution which, by passing this law, they will no longer receive.[140]

1.133With regard to the drafting of schedule 4, the Law Council has noted that it ‘‘goes beyond what is necessary to address the concerned mischief.’’[141] The mischief should be solved ‘‘without unnecessarily and inappropriately penalising the undertaking of off-market share buy-backs or causing a dilution of franking through the penalty regime.’’[142]

1.134Furthermore, the Law Council has submitted that the ‘‘penalty regime is the effective wastage of franking credits, which would otherwise have been attached to the dividend component of the share buy-back price.’’ This measure is not appropriate, given the importance of off-market share buy-backs are as a capital management tool:

The Taxation Committee submits that changes to the rules dealing with off-market share buy-backs by listed public companies may inadvertently create particular anomalies associated with companies undertaking on-market share buy-backs.[143]

1.135The government should not be seeking to limit the distribution of franking credits to shareholders unnecessarily. The Law Council believes that this should be the important consideration when considering changes:

... franking credits are regarded by shareholders as being valuable, and should not be removed or lost by virtue of a company undertaking an off-market share buy-back…[144]

1.136King & Wood Mallesons expressed the strong view that Schedule 4 should ‘‘not be legislated in its present form’’.[145] They reiterated the importance of off-market share buy-backs with respect to franked distributions:

Off-market share buy-backs are an important capital reduction mechanism and franking credits have considerable value to shareholders.[146]

1.137There will likely be flow-on effects on tax, profitability and shareholder returns as a result of this measure, which Professor Robert Nicol has contended:

If implemented, I expect off-market buy-backs will be discontinued and some companies will choose not to take the on-market option, resulting in some instances of less than optimal capital management, reduced profitability, less tax paid and reduced shareholder returns.[147]

1.138These flow-on effects would be a result of making certain forms of capital management ‘‘unusable’’, thereby reducing capital market efficiency, as has been suggested by Sandon Capital:

If the amendments are enacted as proposed, selective off-market buy-backs will become redundant. They will practically become unusable as a form of capital management. The ability to include a fully franked dividend as part of a selective off-market buy-back is an essential aspect of that form of buyback. Without that component, there is no differentiating factor and selective off-market buy-backs will offer little to no attraction for either companies or shareholders and will become redundant. The enactment of Schedule 4 will reduce the number of capital management tools available to companies and reduce capital market efficiency.[148]

1.139In a time of increasing cost of living pressures, reducing franked distributions via off-market share buy-backs would primarily affect individuals in lower tax brackets. NAOS Asset Management said that Schedule 4 would therefore be contradictory to the purpose of dividend imputation:

We oppose this amendment and suggest that this appears to go against the very purpose of the franking system, i.e. to prevent double taxation on company earnings… we would argue the primary beneficiaries of how these buybacks are currently structured (i.e. with both a capital and fully franked dividend component) are those individuals or organisations in lower tax brackets, such as charities and SMSF members in pension phase. In a time where cost of living pressures are increasing significantly, amending the current legislation in such a manner which will affect those who rely on the benefits of the franking system the most seems to be ill-considered.[149]

Impact on charities

1.140It is evident the proposed changes will have a negative impact on charities and the philanthropic sector regarding their ability to raise funds.

1.141While there were differing views about the extent to which the sector and other beneficiaries would be impacted by these changes, the overwhelming evidence from witnesses, covering a breadth of charitable fundraising experience, was that they will have a significant and negative impact on the private funding of Australian charities and philanthropic organisations.

1.142Treasury’s 2022/2023 Tax Expenditures and Insights Statement[150]provides a breakdown of the $67 billion in franking credits distributed by Australian companies in 2019/2020 and identified that $17.2 billion of this was claimed by individuals, $5.6 billion went to APRA-regulated and other superannuation funds, $3.2 billion to self-managed superannuation funds and, relevant here, $2.1 billion to income tax exempt entities. The remaining $20 billion flowed more generally, including overseas.

1.143Significantly, the PBO confirmed in its budget analysis of the changes to franked distributions funded by capital raisings that the value of franked dividends claimed by charities was worth $1.49 billion in 2018/2019, $2.10 billion in 2019/2020 and $1.04 billion in 2020/2021.[151]

1.144The government also confirmed 5,863 endorsed income tax-exempt entities and deductible gift recipients received around $1 billion in refundable franking credits in 2020/2021.[152]

1.145These changes are particularly concerning when community demands on charities and the philanthropic sector continue to peak.

1.146In recent years, the strength of Australia’s charities and philanthropic community has been tested significantly as it worked to deliver support relating to the COVID-19 pandemic, natural disasters, and the rising cost of living.

1.147It is very curious to note these changes are occurring at a time when the government has commissioned a Productivity Commission inquiry into initiatives to better support the philanthropic, not-for-profit and business sectors in doubling philanthropic giving by 2030.

1.148As the government itself noted:

Philanthropic giving underpins the crucial efforts of charities, not-for-profit organisations and community groups to support vulnerable Australians and build social capital and connectedness in Australian communities.[153]

1.149These changes have clearly been proposed with little or no regard to their implications for the charities and philanthropic community. They ignore the reality that the existing arrangements allowing charities to receive franking credits provide them with an additional, necessary and alternate funding mechanism to fulfill their objectives.

1.150By preventing the use of a buy-back payment from being treated as a dividend, charities will be deprived of this critical source of funding.

1.151Of relevance when assessing the impact of the changes on charities and the philanthropic sector is the common misunderstanding of how the regulatory and tax settings encourage, or discourage, giving.

1.152Due consideration has not been given to the impact of these changes to those charities and philanthropic organisations that have investment portfolios and benefit from effective and efficient capital markets.

1.153The evidence from Future Generation, one of Australia’s Top 30 corporate philanthropists, is worthy of note.

1.154Future Generation companies are Australia’s first listed investment companies to provide both investment and social returns, offering an investing vehicle with both Australian and international fund managers, while at the same time supporting high-impact Australian charities.

1.155Future Generation, which has invested more than $65 million in Australian charities since it began in 2014, said:

Franking credit refunds represent a particularly efficient, low-cost form of income for charities and Deductible Gift Recipient (DGR) organisations. This income, applied for a charitable purpose, helps generate social benefit and reduced charities reliance on government funding and other forms of subsidy.[154]

1.156A critical element of philanthropic giving is the cost of capital experience of philanthropic investors.

1.157Future Generation explained:

The cost of capital for Australian companies is a critical item with respect to the continued payments of franked dividends to their shareholders. A low cost of capital, because of the payment of franked dividends incentivises Australian companies to manage their capital in an effective and efficient manner in order to generate sustainable profits and reward shareholders through franked dividend payments…

Reducing personal investment income will reduce available capital of investors to donate to their chosen charitable causes.’’[155]

1.158The current franking credit regime is an important element in reducing the cost of capital for Australian companies, encouraging philanthropic giving that is critical to support the working and growth of the domestic charitable and philanthropic sector.

1.159Future Generation made a further observation that it was retirees and low-tax investors, including registered Australian charities, who participate in off-market share buy-backs.

1.160Mr John Mayo, on behalf of the Association of Independent Retirees, said:

The ability and willingness of retirees to support charitable and not-for-profit causes will be severely constrained by denial of the tax deductibility … the current entitlement of tax refund both enables and encourages seniors to donate to their own worthy causes… denial of refunds for charitable donations will impact measurably and significantly on charities large and small …[156]

1.161Mr Tony Greco from the Institute of Public Accountants (IPA) stated the proposed changes will have a direct impact on charities.

1.162Mr Greco explained that charities typically operate with a zero-tax rate, relying on the ability to monetise franking credits to enhance their funding, and that under the changes charities will be unable to benefit from this income.[157]

1.163These changes will also compound the current and expected future fundraising challenges facing the sector, as explained by Professor Robert Nicol, who said:

As we know, charities, at this particular point in time, in current economic conditions, are being quite strained as they are called upon to meet the ever-growing demands.[158]

1.164The denial of franking credits will hit some of these entities particularly hard with possible implications for welfare support. By preventing a buy-back payment being treated as a dividend – whether franked or not – a beneficiary entitled only to participate as to income will be affected. This will seriously affect charities …’’[159]

1.165The proposed changes will increase the fundraising challenge and create future fundraising risks for the charitable and philanthropic sector at a time of major, and growing, community need.

1.166It is especially short sighted on the government’s part to have overlooked the obvious, and well documented, concerns of organisations and individuals active in the sector about the negative effect the changes will have on Australian giving.

1.167The changes will also serve to disincentivise those financially alert charities seeking to improve their fundraising and reduce future fundraising risks by diversifying their income streams and achieving a greater level of self-reliance.

Conclusion

1.168Labor’s proposed franking credits reforms will likely destroy dividend imputation in Australia.[160]

1.169These changes are yet another broken election promise. Before the election, Labor assured Australians they would not tinker with franking credits. Labor learned from its 2019 election loss, when Australians emphatically rejected its plan to scrap franking credits.

1.170Franking credits have incentivised individual investment in Australian companies. In return for their investment, shareholders receive a proportion of the post-tax profit as a tax credit.

1.171Franked dividends are issued on after-tax profits. They protect Australians against double taxation.

1.172Instead of removing franking credits, Labor is creating a high threshold for when franked dividends can be paid.

1.173It is capturing the whole private economy in its new and novel ‘‘established practice’’ test. In other words, if a company raises capital and doesn’t have an ‘‘established practice’’ of issuing franked dividends, that company will be unable to make franked distributions in the future. It remains unclear how established practice would be defined or whether it is even appropriate.

1.174Restricting the use of franking credits will only make Australian companies more reliant on debt financing. It’s a normal part of company activity to reinvest profits and raise capital to pay for future distributions. To avoid having a distribution being ruled unfrankable, companies will have to seek debt capital instead, which is not always available to small growth companies.

1.175By restricting standard capital management, this measure will increase the cost of capital for small and medium companies and will drive investors to larger companies at the expense of small and medium companies. Small growth companies, which rely on new investment through capital raising, will have their franked distributions deemed ‘‘unfrankable’’ because they do not have an established distribution practice.

1.176Labor’s changes would create an uneven corporate playing field, disrupting our capital markets.

1.177Labor has claimed that these changes boost the budget by $10m per year. To date, the evidence received demonstrates that no credible modelling or detailed costings have been released that supports Labor’s claim.

1.178The Committee has heard that the purported $10m saving is a guess. We have received PBO analysis that indicates these measures could lead to a $1 billion to even $12 billion loss in tax revenue per annum if it has behavioural effects on our economy.[161]

1.179Moreover, Labor is making these changes despite a 2015 ATO Taxpayer Alert drawing attention to this very issue. As highlighted by numerous stakeholders during the course of this inquiry, it is unclear what problem this bill is seeking to address. The ATO found that these funding arrangements no longer pose a significant risk, and Treasury has confirmed that they do not even occur.

1.180Tinkering with dividend imputation will impact Australian companies, but more significantly, it will have a bigger impact on all Australians. In particularly, it will have an immediate and disproportionate impact on retirees, who ‘‘will be punished by losing their dividend franking.’’[162]

1.181Schedule 4, which deals with off-market share buybacks, is just a tax increase on Australians and Australian companies. It will disproportionately affect Australian charities.

1.182Ultimately, Australia will suffer from lower levels of investment into private companies and a less dynamic economy and society. Labor wants to kill the system of dividend imputation in Australia and it wants to do it in the dark. So much for transparency and integrity, a point so poignantly highlighted by Professors Christine Brown and Kevin Davis in their submission.[163]

1.183This is textbook poor legislation. Even the Chair’s majority report has conceded that the drafting is poor and should be fixed.

1.184The Senate should reject these measures, which are a threat to Australia’s economy, and constitute a broken election promise from Labor.

1.185Coalition Senators recommend that Schedules 4 & 5 of the bill not be passed.

Senator Andrew BraggSenator Dean Smith

Deputy ChairMember

Senator for New South WalesSenator for Western Australia

Footnotes

[1]Andrew Bragg, ‘Labor is fiddling with its promise to leave franking credits alone’, The Australian, 2May2023, https://www.theaustralian.com.au/business/labor-is-fiddling-with-its-promise-to-leave-franking-credits-alone/news-story/9dafbfeea51a1c7d1cdd1f689cf29e25 (accessed 30May2023).

[2]‘Opposition Leader dumps franking credits policy’, The Sydney Morning Herald, 2 January 2021, https://www.smh.com.au/national/opposition-leader-dumps-franking-credits-policy-20210102-p56rce.html (accessed 30 May 2023).

[3]Mr Anthony Albanese MP, ABC Radio with Sabra Lane, Radio Interview, 30 March 2021.

[4]Mr Jim Chalmers MP, 4BC Drive, Radio Interview, 17 January 2022,https://www.jimchalmers.org/latest-news/transcripts/4bc-drive-17-01-22/ (accessed 31 May 2023).

[5]Mr Anthony Albanese MP, ABC Perth mornings with Nadia Mitsopoulos, Radio Interview, 4March2022.

[6]Department of the Treasury (Treasury), Franked distributions and capital raising - Public Consultation, September 2022, https://treasury.gov.au/consultation/c2022-314358 (accessed 30 May 2023).

[7]Treasury, ‘Key Budget Measures–Corporate Taxation’, FOI 3204, Document 30, https://treasury.gov.au/the-department/accountability-reporting/foi/3204, p. 3.

[8]Commonwealth of Australia, Budget Measures: Budget Paper No. 2 2022-23 (October), Improving the integrity of off-market share buy-back, p. 13.

[9]Professor Christine Brown and Professor Kevin Davis, Submission 4, p. 6.

[10]Association of Independent Retirees, Submission 20, p. 2.

[11]Professor Graham Partington, Submission 1, p. 4.

[12]Wilson Asset Management, Submission 11, p. 1.

[13]BURRELL Stockbroking and Superannuation (BURRELL), Submission 18, p. 1.

[14]Mr Christopher (Chris) Burrell, Managing Director, BURRELL, Committee Hansard, 2 May 2023, p. 26.

[15]Mr Lawrence Banks, Private Capacity, Committee Hansard, 2 May 2023, p. 56.

[16]Corporate Tax Association, Submission 12, p. 2.

[17]Corporate Tax Association, Submission 12, p. 2.

[18]Mr Anthony Wilson, Head of Equities, Shaw and Partners, Committee Hansard, 2 May 2023, p. 27.

[19]Wilson Asset Management: Responses to questions on notice from Senator Bragg and Senator O'Neill (received 5 May 2023), p. 1.

[20]Ms Fiona Balzer, Policy and Advocacy Manager, Australian Shareholders Association (ASA), Committee Hansard, 2 May 2023, p. 21.

[21]Ms Fiona Balzer, Policy and Advocacy Manager, ASA, Committee Hansard, 2 May 2023, p. 21.

[22]Dr Ian Langord, Submission 2, p. 1.

[23]Professor Robert Nicol, Submission 8, p. 2.

[24]Law Council of Australia, Submission 10, p. 12.

[25]Law Council of Australia, Submission 10, p. 12.

[26]King & Wood Mallesons, Submission 14, p. 4.

[27]King & Wood Mallesons, Submission 14, p. 16-17.

[28]The Tax Institute, Submission 15, p. 4-5.

[29]SMSF Association, Submission 19, p. 2.

[30]Mr Anthony Wilson, Head of Equities, Shaw and Partners, Committee Hansard, 2 May 2023, p. 27.

[31]Mr Anthony Wilson, Head of Equities, Shaw and Partners, Committee Hansard, 2 May 2023, p. 27.

[32]Explanatory Memorandum, p. 53.

[33]Mr Jesse Hamilton, Chief Financial Officer, Wilson Asset Management, Committee Hansard, 2May2023, p. 34.

[34]Ms Diane Brown, Deputy Secretary, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 64.

[35]Treasury: answers to questions on notice from Senator Nick McKim, IQ230–000047 (received 12May 2023), p. 2.

[36]Wilson Asset Management: Responses to questions on notice from Senator Bragg and Senator O'Neill (received 5 May 2023), p. 3.

[37]Burrell Stockbroking & Wealth Management - Response to question on notice from Senator Walsh, received 5 May 2023, p. 8.

[38]Mr Christopher Taylor, Chief of Policy, Australian Banking Association (ABA), Committee Hansard, 2 May 2023, p. 47.

[39]ABA, Submission 22, p. 5.

[40]ABA, Submission 22, p. 5. See Also, EM, Example 5.2–Underwritten reinvestment plan funds special dividend, pp. 58–59.

[41]Mr Tim Sherman, Partner, Tax Group, King & Wood Mallesons, Committee Hansard, 2 May 2023, p.53.

[42]Professor Robert Nicol, Submission 8, p. 1.

[43]Chartered Accountants Australia and New Zealand (CA ANZ) & CPA Australia, Submission 17, p.7.

[44]Mr Geoff Wilson, Chairman and Chief Investment Officer, Wilson Asset Management, Committee Hansard, 2 May 2023, p. 32.

[45]Mr Geoff Wilson, Chairman and Chief Investment Officer, Wilson Asset Management, Committee Hansard, 2 May 2023, p. 32.

[46]Wilson Asset Management, Submission 11, p. 2.

[47]Ms Fiona Balzer, Policy and Advocacy Manager, ASA, Committee Hansard, 2 May 2023, p. 21.

[48]Mr Anthony Wilson, Head of Equities, Shaw and Partners, Committee Hansard, 2 May 2023, p. 25.

[49]King & Wood Mallesons, Submission 14, p. 6.

[50]Ms Diane Brown, Deputy Secretary, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 63.

[51]Ms Diane Brown, Deputy Secretary, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 63.

[52]Nick Toscano, ‘Newcrest backs Newmont’s $29b takeover bid to form global gold giant’, The Sydney Morning Herald, 15 May 2023, https://www.smh.com.au/business/companies/newcrest-backs-newmont-s-29b-takeover-bid-to-form-global-gold-giant-20230515-p5d8h7.html (accessed 30 May 2023).

[53]Newcrest Mining Limited, ‘Newcrest enters into binding scheme implementation deed with Newmont’, Market release, 15 May 2023, p. 1.

[54]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 53.

[55]Mr Christopher (Chris) Burrell, Managing Director, BURRELL, Committee Hansard, 2 May 2023, p. 27.

[56]Mr Christopher (Chris) Burrell, Managing Director, BURRELL, Committee Hansard, 2 May 2023, p. 28.

[57]Nick Evans, ‘Newcrest board approves $29bn Newmont takeover’, The Australian, 15 May 2023, https://www.theaustralian.com.au/business/newcrest-agrees-288bn-newmot-takeover/news-story/caaff6e07cd9b288cb139fee4912d114 (accessed 30 May 2023).

[58]Burrell Stockbroking & Wealth Management:Response to question on notice from Senator Walsh, (received 5 May 2023), p. 9.

[59]Burrell Stockbroking & Wealth Management: Response to questions on notice from Senator Walsh, (received 5 May 2023), p. 9.

[60]Burrell Stockbroking & Wealth Management: Response to questions on notice from Senator Walsh, (received 5 May 2023), p. 9.

[61]Dialogue between Senator Andrew Bragg, Deputy Chair, Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia & Mr Tim Sherman, Partner, Tax Group, King and Wood Mallesons, Committee Hansard, 2 May 2023, p. 52.

[62]Mr Anthony Wilson, Head of Equities, Shaw and Partners, Committee Hansard, 2 May 2023, p. 26.

[63]Mr Anthony Wilson, Head of Equities, Shaw and Partners, Committee Hansard, 2 May 2023, p. 26.

[64]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia & Mr Tim Sherman, Partner, Tax Group, King and Wood Mallesons, Committee Hansard, 2 May 2023, p. 52.

[65]Law Council of Australia: Responses to questions on notice from Senator Walsh, (received 4 May 2023).

[66]Law Council of Australia: Responses to questions on notice from Senator Jess Walsh (received 4 May 2023).

[67]Treasury: response to Senator Andrew Bragg’s questions on notice IQ23-000051, p. 3 (received 22 May 2023).

[68]Professor Christine Brown, Private Capacity, Committee Hansard, 2 May 2023, p. 16.

[69]Professor Graham Partington, Submission 1, p. 10.

[70]Professor Graham Partington, Submission 1, p. 10.

[71]Professor Graham Partington, Private Capacity, Committee Hansard, 2 May 2023, p. 11.

[72]Mr Graham Partington, Private Capacity, Committee Hansard, 2 May 2023, p. 11.

[73]Law Council of Australia, Submission 10, p. 12.

[74]Wilson Asset Management: Responses to questions on notice from Senator Bragg and Senator O'Neill (received 5 May 2023), p. 4.

[75]Wilson Asset Management: Responses to questions on notice from Senator Bragg and Senator O'Neill (received 5 May 2023), p. 4.

[76]Parliamentary Budget Office (PBO), Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 2, https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[77]PBO) Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 2, https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[78]PBO) Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 2, https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[79]PBO, Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 3, https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[80]Prof Graham Partington, Submission 1, p. 11.

[81]Australian Taxation Office (ATO), Taxpayer Alert - TA 2015/2 - Franked distributions funded by raising capital to release franking credits to shareholders, 7 May 2015, https://www.ato.gov.au/law/ view/document?DocID=TPA/TA20152/NAT/ATO/00001&PiT=99991231235958 (accessed 30 May 2023).

[82]Commonwealth of Australia, Mid-Year Economic and Fiscal Outlook 2016-17, pp. 112 - 113.

[83]Treasury, SQ17-000297, answer to written question on notice from Senator Ketter, received 11 April 2017.

[84]Ms Diane Brown, Deputy Secretary, Revenue, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 61.

[85]Treasury, Franked distributions and capital raising - Public Consultation, September 2022, https://treasury.gov.au/consultation/c2022-314358(accessed 30 May 2023).

[86]Geoff Chambers, ‘Treasury blocks Parliamentary Budget Office from ‘methodology and ­assumptions’ of franking credits crackdown’, The Australian, 2 May 2023, https://www.theaustralian.com.au/nation/politics/treasury-blocks-parliamentary-budget-office-from-methodology-and-assumptions-of-franking-credits-crackdown/news-story/753b06044e4f6e3503bfaf05022df103 (accessed 30 May 2023).

[87]PBO, Changes to franked distributions funded by capital raisings, Costings, 2 May 2023, https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[88]Ms Diane Brown, Deputy Secretary, Revenue, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 61.

[89]ATO, Findings report RTP—Public and multinational businesses, https://www.ato.gov.au/Business/Large-business/Compliance-and-governance/Reportable-tax-positions/Findings-report-Reportable-tax-position-schedule-Category-C-disclosures/ #FundingspecialdividendsandbuybacksQ2, (accessed 1 June 2023).

[90]Treasury, SQ17-000297, answer to written question on notice from Senator Ketter (received 11 April 2017).

[91]Professor Kevin Davis, Private Capacity, Committee Hansard, 2 May 2023, p. 16.

[92]Ms Diane Brown, Deputy Secretary, Revenue, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 61.

[93]Ms Diane Brown, Deputy Secretary, Revenue, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 62.

[94]Senator the Hon Katy Gallagher, Minister for Finance, Order for the production of documents No. 2023 – Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 (tabled in the Senate on 15May2023).

[95]Treasury, IQ23-000046, responses to questions on notice from Senator Bragg (received 12 May 2023) p. 2.

[96]Ms Diane Brown, Deputy Secretary, Revenue, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 62.

[97]Treasury, IQ23-000046, responses to questions on notice from Senator Bragg (received 12 May 2023) p. 2

[98]Ms Diane Brown, Deputy Secretary, Revenue, Small Business and Housing Group, Treasury, Committee Hansard, 2 May 2023, p. 61.

[99]Treasury, IQ23-000051, responses to question on notice from Senator Bragg (received 22 May 2023), p. 4.

[100]Treasury, IQ23-000051, responses to question on notice from Senator Bragg (received 22 May 2023), p. 4.

[101]Professor Kevin Davis, Private Capacity, Committee Hansard, 2 May 2023, p. 16.

[102]Mr Christopher (Chris) Burrell, Managing Director, Burrell Stockbroking & Wealth Management, Committee Hansard, 2 May 2023, p. 28.

[103]Law Council of Australia: Responses to questions on notice from Senator Walsh, (received 4 May 2023).

[104]Law Council of Australia: Responses to questions on notice from Senator Walsh, (received 4 May 2023).

[105]PBO, Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/ Parliamentary _Budget_Office/Publications/Costings (accessed 31 May 2023).

[106]PBO, Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 2. https://www.aph.gov.au/About_Parliament/Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[107]Treasury, IQ23-000051, responses to question on notice from Senator Bragg (received 22 May 2023), p. 4.

[108]Treasury, IQ23-000051, responses to question on notice from Senator Bragg (received 22 May 2023), p. 3.

[109]Mr Jesse Hamilton, Chief Financial Officer, Wilson Asset Management, Committee Hansard, 2 May 2023, p. 33.

[110]Professor Christine Brown, Private Capacity, Committee Hansard, 2 May 2023, p. 14.

[111]Mr Andrew Clements, Senior Consultant, King & Wood Mallesons, and Member, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 54.

[112]Dialogue between Senator Andrew Bragg, Deputy Chair, and Ms Diane Brown, Deputy Secretary, Small Business and Housing Group, Treasury, Senate Economics Legislation Committee, Budget Estimates, 30 May 2023, https://www.aph.gov.au/News_and_Events/Watch _Read_Listen /ParlView/video/1186318 (accessed 1 June 2023). Please note that at the time that this document was tabled the Proof Committee Hansard transcript for Budget Estimates was not available, therefore reference is made to the video of the estimates hearing as broadcast on 30 May 2023.

[113]Professor Christine Brown and Professor Kevin Davis, Submission 4, p. 6.

[114]Professor Robert Nicol, Private Capacity, Committee Hansard, 2 May 2023, p. 9.

[115]Professor Graham Partington, Private Capacity, Committee Hansard, 2 May 2023, p. 12.

[116]Mr Jesse Hamilton, Chief Financial Officer, Wilson Asset Management, Committee Hansard, 2 May 2023, p. 34.

[117]Wilson Asset Management: Responses to questions on notice from Senator Bragg and Senator O'Neill (received 5 May 2023), p. 1.

[118]The Tax Institute, Submission 15, p. 4.

[119]Law Council of Australia, Submission 10, p. 12.

[120]Law Council of Australia, Submission 10, p. 12.

[121]Mr Michael Croker, Tax Leader, Australia, CA ANZ, Committee Hansard, 2 May 2023, p. 39.

[122]Mr Scott Treatt, General Manager, Tax Policy and Advocacy, The Tax Institute, Committee Hansard, 2 May 2023, p. 40.

[123]Mr Andrew Clements, Senior Consultant, King & Wood Mallesons, and Member, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 53.

[124]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 54.

[125]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 54.

[126]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 54.

[127]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 52.

[128]Commonwealth of Australia, Budget Measures: Budget Paper No. 2 2022-23 (October), ‘‘Improving the integrity of off-market share buy-back’’, p. 13.

[129]Senator the Hon Katy Gallagher representing the Assistant Treasurer, the Hon Stephen Jones MP, Senate question on notice no. 1692, (answered 8 May 2023).

[130]Senator the Hon Katy Gallagher representing the Assistant Treasurer, the Hon Stephen Jones MP, Senate question on notice no.1694, (answered 8 May 2023).

[131]Senator the Hon Katy Gallagher representing the Assistant Treasurer, the Hon Stephen Jones MP, Senate question on notice no. 1695, (answered 8 May 2023).

[132]Mr Robert Oser, Private Capacity, Committee Hansard, 2 May 2023, p. 58.

[133]Mr Justin Byrne, Chair, Taxation Committee, Law Council of Australia, Committee Hansard, 2 May 2023, p. 51.

[134]Mr Tim Sherman, Partner, Tax Group, King & Wood Mallesons, Committee Hansard, 2 May 2023, p. 51.

[135]Mrs Kerrie Bible, Private Capacity, Committee Hansard, 2 May 2023, p. 56.

[136]BURRELL, Submission 18, p. 2.

[137]Professor Robert Nicol, Submission 8, p. 1.

[138]ASA, Submission 13, p. 3.

[139]Wilson Asset Management, Submission 11, p. 4.

[140]Wilson Asset Management, Submission 11, p. 4.

[141] Law Council of Australia, Submission 10, p. 6.

[142]Law Council of Australia, Submission 10, p. 7.

[143]Law Council of Australia, Submission 10, p. 8.

[144]Law Council of Australia, Submission 10, pp. 8-9.

[145]King & Wood Mallesons, Submission 14, p. 2.

[146]King & Wood Mallesons, Submission 14, p. 8.

[147]Professor Robert Nicol, Submission 8, p. 1.

[148]Sandon Capital, Submission 28, pp. 2-3.

[149]NAOS Asset Management, Submission 3, p.1.

[150]Treasury, 2022-23 Tax Expenditures and Insights Statement, p. 52.

[151]PBO, Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 3.

[152]Response to questions on notice from Senator Dean Smith, Question Time, 28 March 2023 — Document number 2023–001100 (tabled 10 May 2023), https://www.aph.gov.au/Parliamentary _Business/Tabled_Documents/2060 (accessed 1 June 2023).

[153]Productivity Commission, ‘Philanthropy–Terms of Reference’, Productivity Commission inquiry into philanthropy, https://www.pc.gov.au/inquiries/current/philanthropy/terms-of-reference (accessed 1June 2023).

[154] Future Generation, Submission 9, p.12.

[155]Future Generation, response to questions on notice from Senator Dean Smith (received 5 May 2023).

[156]Dr John Mayo, Submission 510, pp.2–3. House of Representatives Standing Committee on Economics, Inquiry into the Implications of removing refundable franking credits, https://www.aph.gov.au/Parliamentary_Business/Committees/House/Economics/FrankingCredits/Submissions (accessed 1 June 2023).

[157]Mr Tony Greco, Institute of Public Accountants (IPA), Committee Hansard, 2 May 2023, p. 2.

[158]Professor Robert Nicol, G. L. Wood Professor Emeritus, The University of Melbourne, Committee Hansard, 2 May 2023, p. 10.

[159]Professor Robert Nicol, Submission 8, p.12.

[160]Andrew Bragg, ‘Labor takes wrecking ball to franking credits’, The Australian Business Review, 29 May 2023, https://www.theaustralian.com.au/business/wealth/labor-takes-wrecking-ball-to-franking-credits/news-story/d577d304de57f2596188508257c82c46 (accessed 30 May 2023).

[161]PBO, Changes to franked distributions funded by capital raisings, Costings, 31 May 2023, p. 2. https://www.aph.gov.au/About_Parliament/ Parliamentary _Departments/Parliamentary_Budget_Office/Publications/Costings (accessed 31 May 2023).

[162]Association of Independent Retirees, Submission 20, p. 4.

[163]Professor Christine Brown and Professor Kevin Davis, Submission 4, p. 6.