I don't get this? My understanding of Labor's plan is that they are denying cash payment tax refunds for Franking Credits. That is, retirees like me who pay no tax, will no longer get cash. But normal Franking offsets will remain. So where is the benefit of a LIT to me? The LIT does not pay extra cash, it just passes through the Franking Credit for offset, which I can't use. Please explain.
We are reading the DRP offers and will probably change our SMSF pension clients to reasonable DRP that basically covers the cash Franking Credits loss. Regards, Rick Huxtable
David, my understanding is that whereas an LIC pays tax and incurs franking credits on their trading/selling stocks, an LIT does not pay any tax before distributing all profits and thus no franking credits from trading is attached. So you receive 100c of the profit from an LIT trading vis 70 cents plus 30 cent franking credit from an LIC. Any franking credits received with dividends from companies invested in will be distributed but that is about one third of the franking credits by, for example, the WAM LICs. Arguably, you will receive less than half the franking credits if the structure is an LIT. Geoff Wilson from WAM Funds is on record as saying he will look at converting his funds to LITs if necessary.
Many thanks for the updates. I will hold off until we actually see legislation. Suspect that if the ALP does not get this done the LNP at some future point will do exactly the same. Morrison has not be shy to hit pensioners with pension cuts, so this won't be off the books either.
Sorry Rick, I dont understand what you mean about DRPs covering the franking credit loss.
Daryl,who are the LICs that have converted to LITs? Tony Connellan
Hi Tony. The LICs I referred to were the Asian Masters Fund (EAF) which was previously AUF. The Australian Governance Masters Index Fund (AQF) has also recently approved a similar restructure. Both are part of the Dixon/Evans and Partners stable of LICs.
As LICs are companies, dividends paid to investors may have attached franking credits. Source: https://www.moneysmart.gov.au/investing/managed-funds/lis...
Amend the quote please: LITs are also closed-ended funds, meaning investors buy and sell existing units on stock exchange, such as the ASX. LITs, however, are incorporated as trusts, rather than companies. LITs must pay out any surplus income to investors in the form of trust distributions. These distributions are received by investors in the same way they were received by the trust from the underlying investments. Franking levels may vary depending on the income distributed from the underlying assets. From the same source.