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How would changes to dividend imputation impact LICs?

Discussion in 'Listed Investment Companies (LIC) and Trusts (LIT)' started by twisted strategies, 18th Mar, 2018.

  1. twisted strategies

    twisted strategies Well-Known Member

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  2. Waimate01

    Waimate01 Well-Known Member

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    It seems to me that this only impacts the less well off.

    If anyone's effective tax is less than the company tax rate, they will lose out.

    But if your effective tax rate exceeds the company tax rate (around 180k, I think), the proposed change has zero effect for you.

    But additionally, it seems to me that anyone with superannuation (self-managed or not) will lose out, because the super fund has an effective tax rate of 15% during the accumulation phase. According to how I understand Shorten's scheming, it's not just white-haired retirees who have reason to be cross ... even 25 year old plumbers should be outraged.
     
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  3. twisted strategies

    twisted strategies Well-Known Member

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    well let's start with a self-confessed billionaire ( our PM )

    much of his holdings of internationally focused ETFs resting in a family trust account in Panama .... ( plenty of loyalty displayed there ... )

    Shorten's ( and Turnbull's ) willingness to mess ONCE AGAIN with super funds and franking credits ( no problems with the pollies the tax-payer funded pension is already sacrosanct ) is bordering on an addiction ( to a pile of cash )

    now the poor fund-managers will NOT be happy either more compliance changes and strategiy changes needed as well

    all folks with super funds should be angry .. fees and charges charged by the super funds will rise ( just because the internal costings will rise )

    the only way to stop them is to sweep BOTH major parties from power ,3 (or more years ) of NOT lunching in the parliamentary canteen might infect them with a dose of reality
     
  4. Bruce MacGillivray

    Bruce MacGillivray Member

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    LICs will restructure themselves into trusts, pay the full distribution, and allow investors to deal with the tax issues. So, if you're a SMSF like us, you will receive the whole dividend, and then pay the 15% tax in accumulation phase, and 0% in pension phase
     
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  5. twisted strategies

    twisted strategies Well-Known Member

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    Bruce ,

    *** LICs will restructure themselves into trusts,***

    will that always be a good thing

    i hold a few LICs BECAUSE they buffer ( save up the extra divs. ) the ride out the bad times , ie try to pay a reliable 5% return in good times or tough times

    i have long ago given up searching for the perfect ( in all conditions ) investment vehicle

    while i don't expect a full ( 10 year ) 1920's style repression , in my life-time , i do foresee the potential for a shorter length severe down-turn ( possibly in my life-time ) .. that two or three year buffer might be a godsend if available .

    and do folks need to adjust for extra tax issues the bloody act is already so large very few can interpret it all ( come another election and the new leaders may change big parts of it again )
     
  6. Hodor

    Hodor Well-Known Member

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    Can they do this?
    I can't just move my holdings into a trust without incurring tax events.

    and as twisted points out they would be sacrificing some of their advantages.

    That doesn't sound right. The trust will distribute the dividends at the level of franking of the underlying investments - per my understanding. Like ETFs.

    A better solution to all this might be to incur a minimum tax rate on trusts.
     
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  7. austing

    austing Well-Known Member

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    Note that there’s a lot of investors in LICs outside of SMSFs where franking credits would still be very beneficial under Labor’s proposal. A shareholder vote would likely be required to change the structure so it’s difficult to know what the outcome would be.

    The older LICs have minimal turnover and are entitled to LIC discounted Capital Gains. They are mostly just passing through dividends from the underlying holdings. The proposed change wouldn’t impact them too badly but perhaps expect downward pressure on NTA. It would be unlikely they would consider changing to a LIT given the huge embedded long term capital gains in their portfolio unless tax relief was allowed under changes. Even so I’d doubt after decades of being a LIC they would consider changing. After all the proposal is just to go back to the rules prior to 2000.

    The active “trading” LICs whose dividend is largely comprised of capital gains from trading activity will be the worst affected in the SMSF environment. Tax will have already been paid on it but the tax (franking) credit would not be able to be fully claimed by the SMSF investor. The LIT structure would be much more beneficial here as capital gains could be passed through to the investor and tax free to a SMSF pension investor or 10 / 15% tax for an accumulator. For these LICs converting to an LIT would not be too difficult as there’s not a lot of embedded long term “unrealised” capital gain in their portfolio. Typically you can tell because post-tax NTA is not much different to Pre-tax NTA. Sometimes it’s even less!

    Interesting times ahead. Might pay to be cashed up if it happens as there’s likely to be some heavy NTA discounting on offer.
     
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  8. twisted strategies

    twisted strategies Well-Known Member

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    by instinct i avoided a formal SMSF .... must be because of a joke i was once told

    'don't stand between a politician and a pot of money ( by a politician )