Financial Planning, Strategy

Expect complex franking credit discussions: CAANZ

Client discussions about the potential franking ban will not be straightforward.

Advisers and accountants should prepare for in-depth discussions with SMSF clients around strategies to navigate through Labor’s proposal to disallow refunds of excess franking credits should it become law, according to an SMSF expert.

Chartered Accountants Australia and New Zealand superannuation leader Tony Negline said it is a topic that is difficult to discuss simply.

“I think the ability to talk about this on the TV and the radio, it’s somewhat limited because we’re talking about, relatively speaking, relatively complex tax structures, which is very dry, and it’s difficult to talk about that in a very simple way,” Negline told a recent FIIG Securities webinar on superannuation in 2019.

“So I’m not entirely sure this has much cut through from an election perspective if that makes sense. If you’re a casual observer of politics, I think you should be factoring this into your future because it will likely impact your income levels.”

When asked how SMSFs can avoid the repercussions either now or at the time the policy is legislated, apart from keeping some assets in accumulation mode, Negline offered a few options, including reassessing whether an SMSF is the right place to be holding the assets.

“The other option is that in a fund you just stop paying pensions whatsoever and the whole fund becomes taxed at 15 per cent. So you then have more ability to claim some of these franking credits,” he suggested.

“The third option is that you try and get rid of a whole bunch of money and become an age pensioner. But you’re not necessarily exempt in the fund because you may not necessarily meet that threshold at the end of March this year.”

Another option is for the member to shut the SMSF and switch to an Australian Prudential Regulation Authority (APRA)-regulated super fund if they want to retain their shareholding investments, he said.

“If you do think you’re going to have excess franking credits, one of the things you could do is move to an APRA fund that actually has the ability, who has a much larger fund, that is a much larger tax liability, and you might still be able to get the same asset allocation,” he said.

“It’s probably going to cost you more money to run the fund. You’ve got estate planning issues and so on. But you might find the large fund can actually make use of all of your franking credits, which otherwise would have been lost in your fund.”

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