The SMSF Association has welcomed the Senate Economics Legislation Committee’s recommendation that the federal government review the legislative amendments that target franked distributions funded by capital raisings. 

The amendments – Schedule 5 of the Treasury Laws Amendment (2023 Measures No.1) Bill 2023 – aim to prevent certain distributions funded by capital raisings from being frankable, but the association feared it would affect legitimate commercial activity and competitively disadvantage profitable and growing companies. 

In a media release on Tuesday, SMSF Association CEO Peter Burgess said: “As we argued in our submission, there are many legitimate situations where the dividend paid by a company would not pass the proposed established practice test and as a result would be ineligible for franking. 

“Examples could include newly established companies with no established record of paying dividends and companies operating in volatile industries where dividends may only be paid irregularly.” 

The association also argued in its submission that raising debt may not be possible or desirable for companies. 

It also claimed that an equity raising is often preferred because it frees up cash from previously earned reinvested profits and enables the company to avoid the costly and undesirable need to sell assets. 

“We therefore recommended that the amendments in Schedule 5 should not apply in situations where a company had legitimately earned profits and sought to distribute those profits to its shareholders – a point specifically identified in the Senate’s report,” Burgess said.

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