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Buyback loophole unfair - accountants
IN A FISCAL deficit environment that Australia finds itself in, it’s time to have a hard look at the share buyback scheme loophole that continues to reduce the Commonwealth revenue line, says the Institute of Public Accountants (IPA).
“The share buyback system is inequitable and reduces Australia’s revenue options to fund other initiatives, especially those supporting small business,” said IPA chief executive officer, Andrew Conway.
“People on higher marginal tax rates receiving a dividend have to pay ‘top-up’ tax and are therefore, much less likely to participate in share buyback schemes.
“This creates an inequitable distribution of franking credits and reduces the attraction of buybacks for specific groups of taxpayers. Off-market buybacks are mostly attractive to low tax paying shareholders.
“Given that one of the principles of developing tax policy is equity, then this issue should be considered in future tax reform, so that all taxpayers receive the same treatment.
“For entities that pay no tax and superannuation funds paying no or up to 15 percent tax, share buybacks can be a genuine benefit as they receive the additional incentive of an imputation rebate from the Government.
“While buybacks may be a useful tool for corporate entities in terms of capital management, they come at a cost to the taxpayer, as Treasury coffers miss out on top up tax due to skewed distribution of franking credits.
“Telstra is the first major listed company since the GFC that has announced a buyback and no doubt there will be many more to follow. Therefore, it may be timely to consider the tax treatment of buybacks, for the benefit of all taxpayers and for the benefit of companies that are offering share buybacks.
“The Government should seriously look at the artificial streaming of franking credits which buybacks create,” said Mr Conway.
About the Institute of Public Accountants
The IPA, formed in 1923, is one of Australia’s three legally recognised professional accounting bodies with more than 24,000 members and students in over 51 countries. The IPA is a member of the International Federation of Accountants, the Accounting Professional and Ethical Standards Board and the Confederation of Asian and Pacific Accountants. The IPA was recognised in 2012 as Australia’s most innovative accounting organisation and listed in the top 20 in the 2012 BRW Most Innovative Companies List.
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