ASFA mounts defence of dividend imputation

The Association of Superannuation Funds of Australia (ASFA) has used a submission to the Henry Tax Review to mount a strong defence of the existing dividend imputation system in the face of continuing media speculation that it may be abolished.

The submission argues that the dividend imputation system is of major importance to the superannuation industry and suggests that no compelling case has yet been made for its removal.

It said that it believed the current dividend imputation system provided a fair outcome for all shareholders and was a major reason Australian superannuation funds invested a substantial proportion of their assets in Australian companies.

The submission said that in the absence of a dividend imputation system, company profits in Australia would be subject to double taxation and the absence of double taxation improved the economic return from equity investments and removed an impediment to investing in Australian equities.

“Australians are continually encouraged to invest in superannuation in order to provide for their retirement,” the submission said. “In addition, there is much concern and discussion regarding the level of financial adequacy for retirees.”

“Removing the dividend imputation system, and thus the capacity for the refund of excess franking, would provide a disincentive to making discretionary superannuation contributions,” it said. “It would also have a negative impact on the financial adequacy of retirees.”

The submission said that major superannuation funds currently provided a significant source of long-term capital funding to Australian companies and that removal of the dividend imputation regime could see a reduction in this source of long-term capital as funds looked to invest offshore.