Aust Foundation Worried About Tax, Asset Values

Meanwhile Australian Foundation also warned shareholders of two developments that investors in other Listed Investment Company’s (LICs), will now have to grapple with.

They are the likelihood that a change in the Federal tax regime might damage the company’s business model, especially if the current dividend imputation scheme is changed, and the growing possibility that the company’s auditors might insist on write-downs in the value of some of AFI’s listed holdings at the June 30 balance date, if they remain substantially below book values.

Other LICs include fellow associates, Mirrabooka, Amcil and Djerriwarrh Investments, plus Argo Investments of Adelaide, Milton Corp in Sydney and a group of smaller investors, many of which are associated with smaller broking and investment banks.

In its ASX filing yesterday, which formed the basis for the update to shareholders at meetings this month, AFI said the recent speculation about the Imputation Regime had been raised with it.

AFI said it had sent a submission to the federal government’s tax review committee, being headed by Federal Treasury head, Dr Ken Henry and had indicated its opposition to any changes.

"The imputation system actively encourages the formation of capital by retail shareholders/superannuation funds – recent equity raisings in Australia (were) strongly underpinned by retail investors

"Company dividends (are) currently under pressure – retirement income (are also) under pressure. Any change to imputation regime may increase these pressures

"For these reasons, we believe maintaining an imputation system is important

"We will continue to discuss with the appropriate authorities in order to protect our shareholder’s interest," the company said.

The company warned shareholders that "global economic conditions have worsened;" the proper functioning financial markets" is the key to any prolonged upswing" and "Government actions (were designed) to moderate decline, rather than produce strong growth.

"Recent company results were mixed with dividends generally under pressure; AFIC has cash but at this stage is a patient investor (same comment as the full year!)

"We will continue to focus on quality and sustainable long term business franchises with strengthened market positions."

But then the company warned that its auditors "may require recognition of an impairment charge against some holdings at the full year (where current value is well below book cost) even where we believe the investment has good long term value.

"This may potentially impact AFIC’s Profit After Tax; however, Net Operating Profit After Tax from which dividends are determined is not impacted."

The company said it will continue to be assess dividend policy "against our normal criteria – outlook for company dividends, level of retained earnings and other reserves, level of franking credits".

The company said this question of impairment "does not impact the Company’s NTA value" as its portfolio is marked to market daily.

AFI shares rose 9c to $3.89. The February 28 NTA was $3.45, which was ex the 8c a share interim dividend.

The market is up around 10% since then.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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