Advisers and their clients have begun contemplating various planning strategies in the event the Labor Party’s franking dividend proposal becomes policy, according to a specialist law firm.
DBA Lawyers director Daniel Butler noted during a recent webinar that one strategy being reviewed is whether having an SMSF completely in pension phase was worthwhile if it resulted in “burning” excess franking credits.
Butler said, for example, a two-member SMSF where each individual had a balance of $1.6 million and was purely in pension phase would be no worse off rolling their pensions back into accumulation phase.
He explained if SMSF members were in this situation and were claiming exempt current pension income, the exemption could be diluted should Labor’s franking credit policy be introduced as a result of the loss of the refunds they currently receive.
Further, he pointed out there could be another benefit from the rollback into accumulation phase.
“The other outcome would be for instance if you have members who are in pension phase and they do go to accumulation phase, they’re not required to withdraw by 30 June each year the required minimum pension,” he said.
“So what they would do if they went into accumulation is obviously take lump sum withdrawals as and when needed. But they would not be forced to pull out the minimum 4 per cent or whatever percentage they’re on at the time.
“The SMSF also accumulates greater assets for the longer term in the concessionally taxed superannuation environment by not having to pay out annual pension payments to its members.”
The new strategy assumes the investment portfolio generating the same level of franking credits is maintained in the SMSF.