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Regulation, Retirement, Superannuation

Franking credit policy will shake tax neutrality

The federal opposition’s franking credit proposal will disrupt tax neutrality in the superannuation industry should it become policy, SuperConcepts has warned.

In its detailed submission to the House of Representatives Standing Committee on Economics inquiry into Labor’s proposed policy, the SMSF administration firm argued the proposed pensioner guarantee is unlikely to protect SMSF members from the impact of removing refundable franking credits and will over time unsettle the vital tax-neutrality balance.

“The guarantee will apply only to an SMSF if one or more members of the fund were receiving a Centrelink pension before 28 March 2018,” SuperConcepts technical and education services general manager Peter Burgess said.

“This ‘at a point of time’ approach means an SMSF that didn’t qualify for the pensioner guarantee, but has members who qualify for a Centrelink pension sometime on or after 28 March 2018, will still not be eligible for a refund of excess franking credits.

“This is despite this same member presumably being entitled to receive a refund of excess franking credits had they chosen an alternative retirement savings vehicle.”

Burgess added new SMSFs established on or after 28 March will not qualify for the pensioner guarantee and will not have access to refundable franking credits, regardless of the assets of their members and their entitlement to Centrelink benefits.

“For many existing and prospective SMSF members, this is likely to be a significant factor when weighing up the merits of an SMSF,” he said.

“As the Assistant Treasurer [Stuart Robert] recently stated, SMSFs play a valuable role in allowing people the choice to exert more control over their retirement savings and they also provide a more competitive dynamic in the superannuation sector.”

SuperConcepts also said in its submission that a self-funded retiree with an SMSF will be ineligible to receive refunds on excess franking credits, while individuals in most public offer funds will continue to receive those refunds.

Elsewhere, the submission said the policy will lead to a rise in super administration fees due to reduced competition and choice.

“The existence and success of the SMSF sector over many years has put downward pressure on administration fees and continues to foster higher levels of investment choice and member engagement across the entire superannuation industry,” Burgess said.

“You don’t need a PhD in economics to understand the basic tenets of supply and demand, and if the SMSF sector is weakened, then the flow-on effects will be felt by members in other superannuation sectors as well.”

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