Superannuation, Tax

Franking credits the icing, not the whole cake

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Australian equities are a solid investment even without the addition of franking credits

Plato Investment Management managing director Don Hamson said investors in Australian equities have access to world-leading levels of return that have historically ranked as some of the highest in the world without the inclusion of franking credits.

Speaking at a media briefing in Sydney today, Hamson said recent Credit Suisse research examining global returns found Australia topped the list of developed markets over 119 years.

He noted the research looked at real returns across the globe and did not include franking credits in those figures either, with Australia leading the United States marginally for the level of its returns.

“Even if an investor lost their franking credits, the return on Australian equities has been pretty good,” he said, adding this included the period of the past 30 years when franking credits have been available.

“It’s like icing on the cake. The cake is pretty good and it has a solid foundation, and while the icing is sweet, you don’t mind losing it if you don’t like it.

“That is what the franking credit debate is about now. We have a bunch of retirees getting franking credits and being told they can’t have that icing anymore and they are getting upset.”

He said he supported the retention of franking credits, but recognised there was likely to be some changes in investment strategies if the Labor Party wins the next federal election and its proposal passes through parliament.

Based on conversations with financial advisers, he said investors who were currently using franking credit refunds were already putting plans in place to counter the possibility they may lose them within an SMSF.

“Our adviser clients are not too worried and have worked out they need to transfer SMSF clients in pension phase into an APRA (Australian Prudential Regulation Authority) fund,” he said, adding some strategies were looking at moving listed equities onto a platform either inside or outside an SMSF, while keeping the SMSF open to hold other assets.

“As a fund manager, we may lose an investor as an SMSF investor, but we expect they will buy us through a platform. That is what they are telling us they will do if this comes into place.”

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