Australia and New Zealand Banking Group (ASX: ANZ) shareholders, indeed all ASX company shareholders, may soon lose the benefit of franking credit refunds.
The Federal Labor Party has committed to removing franking credit refunds from the tax system, except for a few different select groups. But, working Australians would lose the benefit of the franking credit refunds.
How likely is this?
The Labor Party certainly seem committed to the idea, so that’s unlikely to change. However, with the potential law change needing to pass both houses it will take MPs and senators to approve the law. Some say that Labor won’t have the necessary senate votes to get it across the line.
But, Labor could do a deal to enact the law or perhaps try to pass a watered-down version.
What could this do to share prices?
It won’t change the profits of companies, but it would partly reduce the effectiveness of the dividends paid by ASX companies, which may in turn reduce the attractiveness in investor eyes who may decide the shares are worth a little less than before. How much less is anyone’s guess. I would imagine it would be up to a few percent to reflect the loss of income yield.
What are alternatives?
One way to get around the change would be to shift to investments that don’t pay tax themselves, instead go for ones that pass through income to investors pre-tax.
For example, that could be real estate investment trusts (REIT) which are investment structures that own property portfolios and distribute the net rent to shareholders each year.
Some of the biggest examples of REITs are Scentre Group (ASX: SCG), which owns all the Westfields in Australia & New Zealand, and Goodman Group
(ASX: GMG), which is a global industrial property landlord.
An income REIT favourite these days is Rural Funds Group (ASX: RFF), which is a farmland landlord which leases agricultural property to various tenants. Farmland is seen as relatively defensive and can provide alternative returns to economy-focused REITs. It might be attractive for income investors because it seeks to raise its annual distribution to securityholders by 4% per year. Its current yield is 4.55%.
2 Other ASX Shares To Consider Ahead Of ANZ
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Disclosure: At the time of publishing Jaz owns shares of Rural Funds Group, but that could change at any time.
