That number comes from the Australian Taxation Office as of June 30,2020 – the latest available figure and an increase of $36 billion from a year earlier. The value of franking credits locked up in companies’ balance sheets is rising rapidly. Twelve years ago,it was $218 billion.
Franking credits compensate shareholders for the tax companies pay on profits. Usually,only part of a company’s profits is paid to shareholders as dividends,with the remainder retained to grow the business. However,company tax is paid on the entire profit,and so franking credits are ‘trapped’ on companies’ books.
Labor’s policy when it was last in opposition was to make franking credits non-refundable,a move which would have hit better-off retirees in the hip pocket,as most of them do not have any tax liabilities,or only small liabilities,against which to use the franking credits. The change would have meant a large reduction in the income they receive.
Many with self-managed super funds,particularly those in the pension phase,are heavily weighted to big dividend-paying Australian shares – by more than is prudent from a portfolio diversification perspective – largely because the franking credits are refundable.
Some companies have been funnelling franking credits to shareholders – those shareholders include Australian superannuation funds – by raising new equity and paying special dividends with credits attached from the money raised.