2 ASX income shares to buy to beat the franking credit bust

These 2 ASX shares could be the ones to own to beat the franking credit bust.

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Franking credits

There aren’t many ASX income shares that can escape the franking credit bust, most ASX companies are affected.

Labor plans to remove franking credits refunds for most Australian investors, which could reduce the total income that many people receive.

The Motley Fool’s very own Scott Phillips recently wrote in the SMH about the flaws in the policy. However, if the policy is enacted it could lead to some low-income investors not getting the benefit of any of their franking credits.

If that happens, investors may want to find ASX shares that offer a decent level of income that don’t pay tax or generate franking credits, such as these two:

Rural Funds Group (ASX: RFF)

Rural Funds is my favourite real estate investment trust (REIT) on the ASX. It’s Australia’s largest listed farm landlord with a variety of farm types like cattle, poultry, cotton, macadamias, vineyards and almonds.

It currently offers a distribution yield of 4.7%, which looks solid to me in this environment of low interest rates.

One of the key attractions for me with Rural Funds is that it looks to grow its distribution yield by (at least) 4% per annum over the long-term. Farmland is a very long-term asset. Management can confidently make the 4% growth prediction because of the rental indexation built into its contracts with its high-quality tenants, the rent increases are linked to either a 2.5% annual increase or CPI inflation.

Magellan Global Trust (ASX: MGG)

Magellan Global Trust is a listed investment trust (LIT), it’s one of the best, if not the best, on the ASX. It invests in high-quality international shares.

It aims to pay a distribution yield of 4% each year, paid bi-annually. This looks fairly attractive in a world where you can’t even get a 3% yield from a bank account.

Some of its biggest holdings include Alphabet, Facebook, HCA Healthcare and Starbucks, it also had a 18% cash position at the end of December 2018.

It was one of the few Australian fund managers to generate a positive return in 2018 and I think it could continue to outperform the market over the coming years. It also just announced a unit purchase plan for current unitholders to buy shares at a maximum price of $1.53 over the next month.

Foolish takeaway

I believe both of these shares can provide good growing income, which won’t be affected by Labor’s plan to alter the franking credit system. That’s why they are both sizeable positions in my portfolio.

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Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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