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HNWI, Regulation, Superannuation

Reforms have blunted imputation credit policy

Labor’s franking dividend policy won’t target the cohort it intended to.

The effect of the $1.6 million transfer balance cap contained in the 2016 federal budget super reforms stands to diminish the amount of tax expenditure the Labor Party is looking to claw back from its proposed imputation dividend refund ban for certain individuals, a mid-tier accounting firm partner has said.

“A lot of the Labor talk has been around targeting [SMSF] pension members who have $5 million or $10 million pension accounts and receiving $250,000, I think was the quote, in tax refunds,” HLB Mann Judd Sydney wealth management partner Jonathan Philpot said at an industry briefing in Sydney today.

“But the big change for them actually happened with the $1.6 million pension cap. Those big pension balances have now largely gone back into accumulation and they’re now being taxed at 15 per cent.”

Philpot pointed out it will be a completely separate set of individuals who will be most affected by the proposed policy.

“The bigger impact of this change will be on those people who just miss out on any type of government benefit,” he noted.

“So typically we’re talking about a couple with assets of over $850,000 up to this $1.6 million cap. That’s really who it really has a large impact on.

“I’ve done a bit of work on the $1 million self-managed super fund that might have between 40 per cent in Australian shares and 80 per cent in Australian shares and they’re losing between 0.5 and 1 per cent of their earnings each year – so this is quite a big impact on their annual earnings.”

With regard to the longer-term effects of such a policy, he predicted a significant shift in asset allocations may not eventuate.

“When you look at the actual income you get from Aussie shares compared to international shares and current term deposit rates, and everything like that, Australian shares still look pretty attractive even with a reduced [level of] tax refund franking credits,” he said.

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