News & Insights

AFR: Labor’s ironic franking sugar hit

Shadow treasurer Chris Bowen will no doubt see plenty of irony in the fact that fund managers and self-managed super trustees are about to get a handy special dividend sugar hit from the Labor policy they hate.

BKI Investment Company became the latest listed investment company to try to get ahead of Labor’s plan to get rid of cash refunds for unused franking credits, declaring a special interim dividend on Wednesday to soak up some of the LIC’s excess franking credits.

Three LICs in the Australian Foundation Investment Company stable have also declared special dividends in the last week.

Don Hamson, managing director of Plato Investment Management, says dividends increased 8 per cent in dollar terms in 2018. Michele Mossop

Don Hamson, managing director of Plato Investment Management, says dividends increased 8 per cent in dollar terms in 2018.

While the market ructions in the December quarter weighed on the returns of many fund managers, Plato’s Australian Shares Income Fund had a record year for income distributions, with gross income distributions – cash plus franking credits after fees – in excess of 12 per cent.

That’s well above the longer-term average of 9 per cent, and Hamson sees the figure hitting at least 14 per cent for the 2018-19 financial year, given BHP’s monster payout.

If the special dividends flow – and Hamson is also confident they will – then distributions will climb again.

Still, Hamson is no fan of the Labor proposal. He says around 10 per cent of his investor base would be affected, but the best case study he has to argue against the proposal is his late mother, who passed away last year.

Her annual income of $30,000 was high enough to mean she didn’t qualify for the pension, but not so high that she could afford the $8000 hit that Hamson estimates she would have faced under the Labor policy.

“She would have lost 28 per cent of her income, and she wasn’t a wealthy woman,” Hamson says.

Read the full article in the Australian Financial Review.