Question 1. It appears that Macquarie’s new capital notes will trump the margin on the recent NAB offering. I read that you like the NAB offer, but is there a reason not to go instead for this increased margin available on the Macquarie offer of around 4.15%?
Answer: Thanks for the question about Macquarie’s new capital note.
There are a few differences:
- Longer to the mandatory exchange (10.5 years);
- Macquarie has three call dates (their option), normal is just one – in 7.5 yrs, 8.0 yrs and 8.5yrs; and
- Macquarie is not quite as strong a credit as CBA or NAB – you would expect it to pay a higher premium (margin).
The other big difference is the distribution is only 45% franked. While this is grossed up so that the cash distribution is higher and is adjusted for the lower level of franking, it could prove to be attractive to SMSF funds in pension who are worried about Bill Shorten’s possible change to franking credits. For most taxpayers, it will have absolutely no impact (this includes individuals paying tax at rates above 30% and many SMSFs paying tax at 15%). But 0% taxpayers who get cash refunds could get a higher total return from the Macquarie Capital Note than a comparable fully franked capital note if Bill Shorten’s change goes ahead as planned.
Question 2. I have 2 super accounts, one of which is an SMSF. Combined super balance for tax year ended 30 June 2018 has just exceeded $1.6 million. I am 57 years old and hence in accumulation phase. Going forward, does this mean that I can only make deductible contributions of $25k pa and, even if the combined Super balance falls below $1.6 million (as it did end Dec 2018), I cannot make any undeducted contributions for 2019 and beyond?
Answer: Yes, if your total superannuation balance is over $1.6m, you can’t make any personal (non-concessional) contributions. The balance is measured as at the 30 June each year and applies to the following financial year. If your total superannuation balance is under $1.6m on 30/6/19, then you will be eligible to make a non-concessional contribution again in the FY20 (1/7/19 to 30/6/20) year.
Question 3. Do you think NAB has too many active risks in play to hold as an investment?
Answer: No. While it is without a Chairman/CEO, it might struggle. A dividend cut is also on the cards in the next 12 to 18 months. However, it is very cheap and there really isn’t that much difference between it and the other 3 majors.
Question 4: I am seriously thinking of making a political donation to the Libs because of Labor’s Franking credits policy, which is going to severely hurt my investment income in my SMSF. My question is this: Are there any compliance or other issues you know of regarding a SMSF making a political donation?
Answer: I understand your frustration and annoyance, but I would counsel against this.
While it is probably untested in law, a political donation could well run fowl of the “sole purpose” test, which in essence says that a superannuation fund exists for the sole purpose of providing retirement benefits for its members. This is Section 62 of the SIS Act. The ATO also has a practice note on this: SMSFR 2008/2 (see https://www.ato.gov.au/law/view/document?Docid=SFR/SMSFR20082/NAT/ATO/00001&PiT=99991231235958 [1]
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.