The data used to formulate the federal opposition’s proposal to abolish cash refunds for excess imputation credits is outdated and does not factor in recent superannuation reforms, according to an industry expert.
Smarter SMSF chief executive and co-founder Aaron Dunn said Labor Party leader Bill Shorten has used Parliamentary Budget Office data dating back to 2014/15 to justify his policy proposal, and has failed to consider clients who have already been affected by the introduction of the transfer balance cap and total super balance measures from 1 July 2017.
“You’re going to have a lot of clients who may have had, for example, a $3 million member benefit that was all in pension phase and now close enough to half of that has now gone back to the accumulation phase,” Dunn told selfmanagedsuper.
“Or they’ve taken the money out of the superannuation, which means that the full entitlement of that 30 per cent franking credit has been lost.”
The potential consequences of this in 2017/18 due to the transfer balance cap dangers have not been considered under Labor’s proposal, he added.
“The narration seems to fit what Bill Shorten wanted it to say rather than actually acknowledging that from 1 July 2017, a lot of these SMSFs are being caught by this so they actually already had a recalibration of their tax because of the fact that they’re restricted to a $1.6 million balance in the pension phase,” he said.
SMSF members may also reconsider whether it is worth investing overseas if they do not enjoy the benefits of franked imputation credits by investing in domestic equities and Australian companies.
“In a retiree sense I don’t think we’re going to see it going into things like direct property and so forth,” Dunn said.
“But there would be a greater argument for people to look beyond local shores and look at potentially overseas investment, which would see a larger quantum of money leave our shores.”
This would affect asset valuations and the amount of capital available inside businesses. If capital raising has to be considered, SMSFs, which are small funds by their nature, may consider alternatives as they would be unable to leverage the benefits of franking credits.
Dunn said the non-refunding nature of the policy will not affect larger-style funds, such as public offer funds, because the combination of accumulation and pension members means franking credits will be absorbed against contributions tax and other investment earnings that are ordinarily taxable.
“But in an SMSF once you’ve got a situation where both members are in retirement phase, the smaller nature of membership and the age of that membership is such that they’re clearly targeting the benefits against self-funded retirees as opposed to those within a public offer environment,” he said.
