28 February 2019
Retirees with more than $1.6 million in self-managed superannuation will mostly be able to dodge Labor’s ban on franking credit refunds, while savers with smaller balances will bear the brunt of the opposition’s proposal, according to consultancy Pitcher Partners.
In a submission to Liberal MP Tim Wilson’s house economics committee inquiry into the Labor proposal, Pitcher Partner superannuation adviser Brad Twentyman said larger-balance SMSFs would still suffer a “detrimental impact” but in percentage terms those retirees would suffer a tax hit significantly less than the “30 per cent tax increase” to be felt by smaller SMSFs.
“Members in larger balance SMSFs are also more likely to be able to restructure their arrangements to mitigate the impact of the tax change,” Mr Twentyman said.
Labor has proposed to end cash refunds for excess franking credits for investors who pay little or no tax from July 1 if it wins the election — a move that is expected to increase government revenue by $56 billion over a decade.
But Mr Twentyman said the franking credit proposal would also treat large regulated superannuation funds differently depending on the demographics of the fund, the percentage of fund assets supporting pensions or the taxpaying status of the fund.
The not-for-profit industry fund sector is expected to be largely insulated from the measure.
“The different tax outcomes arising for taxpayers in similar situation depending on the circumstances of the superannuation structure they are using highlights the significant underlying problems with the franking credit changes being considered,” Mr Twentyman said.
Labor frontbencher Anthony Albanese said yesterday there was a reason Australia was the only major economy to offer the generous tax scheme. “The idea you get a refund … of your tax when you haven’t paid any tax is not sustainable,” Mr Albanese said.
AMP Capital chief economist Shane Oliver said a problem with Labor’s proposal was many Australians had factored their retirement plans around the refunds.
Mr Oliver said the proposal “could be argued to remove an anomaly in the tax system as dividend imputation was designed to prevent double taxation of dividends, not to stop them being taxed at all”.
He also said it was “worth noting Labor’s proposal does not affect at least 92 per cent of taxpayers, who will continue receiving franking credits as they have a sufficient income tax liability — as will pensioners, who will be exempted”.
“If it sets off a broader windback of franking credits, then it would be a bigger concern,” Mr Oliver said.
The cost to the budget of the scheme has increased since it was introduced by the Howard government, when the measure cost $500 million a year.
Since then, many investors and self-managed super fund operators have shifted all their assets into equities to take advantage of the franking credit rebate.
Michael Roddan is a business reporter covering banking, insurance, superannuation, financial services and regulation.