Advisers should consider a strategy of having SMSF clients deliberately exceed both their concessional and non-concessional contributions caps to ensure the effective use of any franking credits available to the fund, a strategy specialist has said.
I Love SMSF director Grant Abbott suggested this possible course of action during a recent webinar as a way to ensure SMSF clients do not lose any imputation credits to which they are entitled should Labor win the next federal election and introduce its proposed ban on franking credit refunds for SMSFs with no tax liabilities.
“Only SMSFs can use franking credits to reduce contributions tax inside the fund and that to me is the real strategic advantage where SMSFs can help members not get ripped off by contributions tax,” Abbott said.
“It means if you have a client in pension phase where someone is still making contributions on their behalf, it’s okay to go over the caps because the franking credits from their pensions can be used to offset any excess contributions tax liability.”
According to Abbott, the strategy would allow existing two-member SMSFs comprised of a husband and wife to manage the amended treatment of franking credit refunds without introducing new members to the fund.
However, he pointed out a member’s total superannuation balance had to be taken into account.
Strategies like this needed to be considered now in preparation for a possible change in government in the first half of 2019, he said.
“We have to start to think about all these strategies prior to the implementation of the super changes Labor will introduce and it’s not a bad idea to get in front of the situation for our clients,” he said.
“So don’t be frightened about going over and above the contributions caps because it seems to me to make sense.
“Remember people are paying for us to be strategists.”