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Financial Planning, Platforms, Regulation

Franking credit plan to bring platform complexity

Beware of tax implications in platforms under franking credit policy.

Advisers managing SMSF clients on platforms will need to consider the tax positioning of the platforms to assess the level of refunds clients can receive on their franking credits should Labor’s proposal to ban imputation credit refunds in certain circumstances become policy, a consultant has said.

NMG Consulting principal consultant David Hutchison told the Calastone Connect Forum in Sydney today that Labor’s policy proposal to scrap excess refunds on franking dividend credits will add an extra layer of complexity that advisers will have to consider and tackle.

“I think it will create some interesting problems for advisers around SMSFs off-platform managing clients on-platform,” Hutchison said.

“Will the platforms be able to receive franking credits depending on the age demographics of their client base?”

Speaking to selfmanagedsuper at the forum, he said SMSF members in retirement phase do not pay any tax and are not going to receive any franking credits.

Advisers not only have to consider fees and product offerings, but they will also have to understand the tax positioning of the platforms they are using to assess whether they will be able to secure the full value of the franking credits, he noted.

“It’s an extra complication in terms of meeting best interest duty, so it’s going to be interesting to see if there are any platforms in the position where they can’t get the full value of the franking credits,” he said.

“If it’s going to be any, it’s going to be potentially more master trusts where they’re a lot more pension focused and typically in outflow anyway. Advisers need to think about whether that increases the rate of outflow because they want to move their clients to get the value of franking credits.”

Because the franking credits will apply at the fund level, advisers need to understand not only the product but the whole fund proposition as advisers may have multiple products in a single fund, he pointed out.

“I think most platforms are going to be okay to get franking credits, but it’s an extra question advisers need to think about,” he said.

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