There are a number of potential behavioural responses to the proposal from individuals and superannuation funds, as well as from companies that distribute franked dividends.
For individuals, potential behavioural responses could include shifting from shares to alternative investment arrangements (including to investments within superannuation), and couples shifting the ownership of shares from the lower income earner to the higher income earner such that the higher income earner can utilise the franking credits as a non-refundable tax offset.
For superannuation funds, potential behavioural responses could include rolling assets from a fund with negative net tax to a fund with positive net tax, changing funds’ asset portfolio allocations, or changing the membership structure of the fund, in order to maximise the utilisation of franking credits.
For companies, a potential behavioural response could include changing the amount of dividends distributed (and profits withheld) or the level of dividend franking due to the decrease in the value of franking credits for some shareholders.
Behavioural responses to the changes to the treatment of franking credits have been incorporated into this costing for individuals and superannuation funds with excess franking credits. This has led to a reduction in the revenue gain arising from the proposal.
The impact on payments to Australian Government pension and other income support recipients due to changing the tax treatment of franking credits would not be expected to be significant over the time period examined and has not been included in this costing.
Over the longer term, the proposal may lead to changes in assets held directly by, or through the superannuation accounts of individuals which may subsequently result in a change in means‑tested payments. The PBO does not expect this impact to be significant over the time period examined.
