The federal opposition’s policy to scrap excess imputation credit refunds, if implemented, would likely reduce the after-tax returns from Australian shares and, in turn, result in SMSFs changing their investment approach and behaviours.
“It’s expected there will be behavioural change,” Ipac chief investment officer Jeff Rogers said.
“Some SMSF investors may sell their Australian shares and buy into property trusts or infrastructure securities whose income, largely, isn’t withheld.
“In other cases, members of SMSFs may shift their portfolio of Australian shares to a large super fund which has sufficient taxable income to avoid any wastage of franking credits.”
Cromwell Property Group head of retail funds management Hamish Wehl said that for a self-funded retiree with an SMSF in pension phase and currently paying no tax, the proposed change would reduce the SMSF’s effective yield.
Wehl said SMSFs could therefore turn to other, previously overlooked, asset classes.
“The trustee then has a decision to make. Do they simply accept the reduction, and the impact on their lifestyle, or should they seek to maintain the original yield by seeking a higher risk-adjusted return in a different asset class, such as unlisted property?” he told selfmanagedsuper.
“There are numerous unlisted property trusts which return a higher yield than 5.52 per cent, where the underlying property asset is leased by high-quality government or ASX-listed tenants for long durations.
“This ensures regular and reliable distributions for investors, usually monthly or quarterly.”
For SMSF investors in accumulation phase, unlisted property trusts also provide a taxation benefit, he said.
“A portion of the distribution, usually 15 per cent to 100 per cent, often consists of a ‘tax-deferred’ component, which has the potential to greatly increase the investment’s return after tax,” he noted.
