ALP backflip poses grandfathering issues

FASEA; exam; AFA;

Advisers who will sit the first round of the FASEA exam are taking a gamble, according to a senior AFA executive.

The federal opposition’s move to spare SMSFs that have at least one age pensioner from its plans to scrap cash payments for excess franking credits poses questions about grandfathering arrangements in relation to SMSF members, according to SuperConcepts.

SuperConcepts technical services and education general manager Peter Burgess told selfmanagedsuper: “It will be interesting to see whether the grandfathering will only be linked to a particular SMSF member and will cease when that member dies or leaves the fund, or whether it applies to the pensioner’s fund and will live on for as long as the fund exists.

“If it’s the latter, then a pensioner with an SMSF as of yesterday has a very valuable asset.”

SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said Labor’s policy proposal change will affect only a very small portion of SMSFs.

Responding to Labor’s policy backdown to exempt all age pensioners from its plans, including SMSFs, Colley said not many SMSF members qualify for the age pension due to the high balances in many SMSFs, meaning they would not qualify under the exemptions for franking credit refunds.

“For those with SMSFs it would be a relatively small number because if you have a look at the average balance of an SMSF being $600,000, if you consider a partner having maybe even $300,000, and they’ve got other assets which are means tested, they would probably cut themselves out anyway,” he told selfmanagedsuper.

The only avenue for members to qualify is by spending more on exempt assets such as a family home, reducing the amount in super, and decreasing the amount they have in personal assessable assets and converting them into non-assessable assets.

“The main thing that we see out of it is the likelihood that some people who are in the margins may be able to restructure their affairs to allow that SMSF to get the franking credit refund,” Colley said.

“It would appear all you would need is a very small amount of social security benefits to enable you to get a hold of those franking credits.”

He pointed out, however, that the policy was only a proposal at this stage and there is a long way to go before the finer details are released and then whether it passes through the Senate if Labor wins the next election.

“The actual detail really needs to be seen before we could take that as concrete to hang our hats on it,” he said.

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