Imputation credits for individuals and super funds will cease being a refundable tax offset and will return to being a non-refundable tax offset regardless of whether the Labor Party wins the next federal election, according to a lawyer.
At the DBA Lawyers SMSF Strategy Seminar in Sydney yesterday, special counsel Bryce Figot said it is not a question of if the refundable imputation system will be abolished, but when, adding Australia was an outlier in the world with this system, although it bears similarities with New Zealand.
“It’s been called for periodically over the years. [David] Murray, for example, he was very adamant that it was the imputation system which prevented us from having what he called ‘a deep domestic bond market’,” Figot said.
Labor announced the policy proposal in March and said it would implement it if elected next year. It then issued a modification, saying SMSFs with at least one pensioner or allowance recipient before 28 March would be exempt from the changes.
Shortly after the policy proposal was announced, Revenue and Financial Services Minister Kelly O’Dwyer said the government would increase the SMSF member limit from four to six members.
Figot wondered whether SMSFs might start admitting more members to “soak up” the imputation credits, but warned against it, especially admitting children.
“One key danger is loss of control even if you’re the majority member. A well-written deed and constitution can address a lot of these issues,” he said.
“But despite how well written the deed is, there’s one issue that we can never address in the deed and the constitution. What do you need to kick someone out as a member or trustee/director? Their written consent.”
This is a legislative requirement as stipulated in the Superannuation Industry (Supervision) Regulations.
Figot suggested SMSF members should arrange for minority members to sign an upfront contingent form to remove them from a fund in case of family disputes.
He also urged families to sign it when there is no family dispute to provide security in case of estrangement or disputes.
