Question 1: I was reading an article this morning at smsmagazine.com.au that stated: “ALP franking policy doesn't abandon self-funded retirees”. It states the policy “is not a scorched earth policy and exempted pensioners, those on government allowances, and those in accumulation phase within their superannuation”. So for an SMSF with $100,000 in dividend income including say, $25,000 franking credits would have a tax bill of $15,000. So would there be a refund of $10,000 simply because they are in accumulation phase rather than pension phase?
Answer: You need to be careful about what you read because there’s a lot of misinformation on this subject. The article is partly correct in that the ALP exempted individual taxpayers in receipt of a government benefit, and SMSFs where one member was in receipt of a government benefit as at 28 March 2018. The latter was estimated to be around 13,000 SMSFs and was not prospective. The ALP did not exempt SMSFs in accumulation mode (the article is incorrect). However, most SMSFs in accumulation will not be affected (or not badly impacted) because:
- They are paying tax at 15% on all investment income, including investments in term deposits, overseas shares, property and unfranked shares;
- They are paying tax at 15% on super contributions; and
- They will be able to use the franking credits to offset the tax payable.
Remember, it isn’t a ban on franking credits – it’s a ban on the cash refund of excess franking credits.