|In March this year Bill Shorten pledged that should Labor win the upcoming election they will no longer allow cash refunds for excess imputation credits paid to individuals and superannuation funds. The proposal offers no grandfathering or transition arrangements however, members of an SMSF who were receiving a government welfare payment (e.g. Aged Pension) prior to 28 March 2018 will continue to be eligible for cash refunds.
As you will have realised, the hardest hit investors will be SMSF members in pension phase with a dividend income focused investment strategy.
The good news is, dependent on the final policy guidelines, we believe that all AMG Super members will continue to receive cash refunds for any excess franking credits.
AMG Super is a large APRA regulated fund in a pooled tax environment. As a result of the volume of tax paying accounts within the fund, we are in a significant tax paying position. This tax payable could be used to offset franking credits payable to our members, allowing us to continue to distribute these credits across member accounts, including pensions.
Below are some scenarios illustrating how significant the impact of these changes could be on SMSF members and some alternatives you may wish to consider:
A SMSF is a single taxable entity. Welcoming younger family members with accumulation balances into a SMSF could allow the trustees to utilise the combined taxable income of both the pension and accumulation components. This can soak up some, if not all, of the franking credits otherwise lost from 1 July 2019 under Labor’s proposal.
Given the political and legislative uncertainty there is a lot of apprehension for investors that would be impacted by Labor’s proposal. If you have concerns for your clients as a result of this proposal and would like to discuss whether AMG Super is suitable for their needs, please feel free to contact one of our distribution team members.