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Superannuation, Tax

Franking credit data set questioned

Small notes with When, What and Question Marks written on them

Concerns have been raised that data used to project the cost of removing franking credit refunds failed to include the impact of the transfer balance cap.

The SMSF Association has claimed the use of three-year-old data to project the impact of the removal of franking credit refunds has been problematic and may not reflect actual outcomes if Labor’s policy is introduced.

Association chief executive John Maroney made the comments during an address to SMSF trustees at an investor event in Sydney when asked about the reliability of the 2014/15 tax data used by the Parliamentary Budget Office (PBO) to provide costings for the proposed policy.

In particular, the question focused on whether the data took into consideration changes that took place after 2015 that modified the taxation treatment of a number of SMSF trustees due to the introduction of the $1.6 million transfer balance cap.

Maroney said the issue had been raised “numerous times” during the course of the recent House of Representative Standing Committee on Economics inquiry into the proposal and the official position from the PBO was the 2014/15 data was the latest relevant data available.

“The PBO have taken that data and made adjustments based on assumptions and the usual methodologies, including behavioural changes,” he said, adding this process was not entirely accurate.

“My knowledge from my own extensive career experience is that it is extremely problematic to do that with the reliability and confidence that the results are accurate, and you may not know this until after the event.”

He added further data gathered since 2014/15 has revealed an increase in taxation from across the super sector and may require a recosting of the proposal if Labor wins the next federal election.

“The partial evidence we have seen so far is there was a bigger shift than anticipated in terms of the increasing tax revenue coming from the SMSF sector and superannuation more generally because of the $1.6 million cap,” he said.

“This issue came up repeatedly in questions from the committee to various witnesses during the last hearing in Canberra and we expected to see more about it in the final report, and also expect the issue will be revisited if the policy does proceed.”

In an appendix to the Standing Committee on Economics final report, the PBO stated the 2014/15 data was used to estimate the amount of revenue expected to be collected under current policy settings and if franking credits were changed to a non-refundable tax offset.

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