Question 1. We are a two director Corporate SMSF. Both current in pension and accumulation, thanks to the imposed caps. Can you please tell me whether any capital losses in our SMSF can be utilised by our estate against capital profits on the closure of the SMSF at our demise and payment of funds as per our wills? We acknowledge, of course, that current rules may change before this event occurs, given the regular messing about with superannuation and SMSF rules in particular.

Answer (by Graeme Colley, Executive Manager, SMSF Technical & Private Wealth at Super Concepts): The calculation of taxable capital gains and losses is calculated on a ‘taxpayer’ by ‘taxpayer’ basis. In the case of your SMSF, any capital losses that have been carried forward or occur in the relevant year can only be applied against further capital gains that have been made by your SMSF. If you are winding up your SMSF and there are carry forward capital losses at that time, they can’t be applied against the capital gains of any other ‘taxpayer’ such as your estate.

Question 2.  I have an SMSF that has relied heavily on franking credits. I have some decisions to make about rebalancing my shareholding if (when) Labor gets elected. What happens to the franking credits on retained profits that are not given to shareholders each year? Are these accumulated by the company and what can they do with them? Is it likely that these could be distributed to shareholders before the end of the year in the case of the Big Banks?

Answer (by Paul Rickard): The ALP’s proposed change to the refunding in cash of excess franking credits won’t have any impact on the balance of a company’s franking account. Companies can distribute franking credits by paying a franked dividend or can carry them forward. The balance represents the total company tax paid, less franking credits distributed to shareholders.

It is likely that ahead of the proposed effective date of 1 July, company Boards will be reviewing their franking account balances. Those with excess capital will consider the payment of a special dividend (e.g. BHP), conduct an off-market buybacks (eg. Rio, BHP and possibly Woolworths) and potentially accelerate their dividend payment schedule. For example, don’t be surprised if the payment of interim dividends by ANZ, NAB and Westpac (which normally occur in July) are made in June 19.

Question 3: If we lose the rebate on franking credits in an SMSF as of 1/7/19, what happens to last years, if, as in most cases, we don’t submit a tax return until December 2019 or even January 2020. Will we still get the rebate?

Answer (by Paul Rickard): Good news! There is no impact on any cash rebate for FY18/19.

The proposed change is prospective and will only apply to dividends received on or after 1 July 2019.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.