The Opposition Leader, Bill Shorten has announced a plan today for the Labor Government (if elected) will change the dividend imputation system to only allow for franking credits to be applied to offset tax on taxable income, rather than act as refundable tax credits.
For many SMSFs, this refundable credit measure introduced back in 2000 under the Howard/Costello Government has played an important role in the vast sums of superannuation monies remaining invested within the Australian share market. For some SMSFs, this franking credit refund added as much as 2% of the fund's rate of return each year and ensured that the attributable tax rate on the income reflected the rate of tax payable by the taxpayer - i.e. accumulation phase 15%, pension phase - 0%.
The ALP would not release the costing, but said the (Parliamentary Budget Office) PBO found:
- The policy would save $11.4 billion in 2020-21 and 2021-22
- The plan would affect about 200,000 SMSFs
- Some SMSFs received cash refunds of up to $2.5 million in 2014-15
- Of credits refunded to SMSFs in 2014-15, half the benefits went to the top 10 per cent of funds (which all had balances exceeding $2.4 million)
As you can see from the above historical statistics don't represent the current state of cash refunds post super reforms from 1 July 2017.
The implications of this change can expand far and wide... firstly, the targeted audience of the Labor Party less than 12 months ago have already seen the benefit of imputation credits slashed in half due to the introduction of the transfer balance cap, with excess amounts either being rolled back to accumulation (subject to 15% tax rate) or have left the superannuation system and taxed at a marginal tax rate (although could be 0% personally where under the tax-free threshold of $18,200).
If Labor was elected and if this policy was introduced it could have significant ramifications on the investment profile of SMSF investors. Whilst I wouldn't see older Australians necessarily allocate greater amounts into property due to liquidity reasons, I could see more focus on international markets which means more capital moving off the balance sheets of Australia companies.
The Coalition have been quick to jump on this, so we will watch this with keen interest...