Imputation refund axe will hit strategies

Removing the cash refunds for excess imputation credits for super funds will affect existing SMSF strategies and prompt a measured rethink for new strategies, a technical expert has said.

“The big issue is that it’s going to have a greater impact from a strategy point of view and an investment decision point of view, particularly for lower balances and lower-income earners,” Miller Super Solutions founder Tim Miller told selfmanagedsuper.

“From an SMSF point of view, there will need to be a reconsideration of the investment strategy because there’s going to be an earlier access to capital requirement due to the previous income that came from the imputation credits.

“Large funds also have high-growth investments and they generate income from Australian-listed securities as much as SMSFs do, it’s just that SMSFs will feel [the impact of this policy] more immediately because trustees are in charge of their own investment strategy and will therefore have to react quicker.”

The plan to abolish the imputation credit cash refunds was proposed by opposition leader Bill Shorten yesterday.

Labor said 200,000 of the 600,000 SMSFs in the country were the policy’s main target and it would not affect 92 per cent of the 12.8 million Australians who lodge tax returns. The dividend refund is expected to create a budget saving of $11.4 billion over the final two years of the current forward estimates and $59 billion over the medium term.

Shorten claimed the change only affects a very small number of shareholders who currently have no tax liability and use their imputation credits to receive a cash refund.

Miller added: “It’s one of those policies that’s not unexpected to have reared its head at some point in time, and I think it was on the cards since it was introduced because it was seen as a bit of a bonus and, at the time, we questioned how long this will last.

“But it has lasted a while and once you get used to something, we don’t like it being taken away.”

Dividend imputation was introduced by then-Labor treasurer Paul Keating in 1987 to avoid double taxation, however, cash refunds began under the Howard government in 2001.

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