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:

1. They are paying tax at 15% on all investment income, including investments in term deposits, overseas shares, property and unfranked shares;
2. They are paying tax at 15% on super contributions; and
3. 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.

Take this example for an SMSF in accumulation mode:

• $50,000 dividend income, which we assume is fully franked, so franking credits are $21,428;
• $50,000 of other income from term deposits, unfranked dividends, overseas shares, property etc;
• $25,000 concessional contributions.
• Total income for the SMSF of $146,428;
• Tax at 15% is  $21,964;
• Less franking credits of $21,428;
• Net tax to pay of $536.

This fund will not be impacted by the ALP’s proposed change.

Question 2: Will franking credits received by an SMSF from managed funds (e.g. Perpetual Industrial Share fund) be dealt with the same way as franking credits from direct shares under the proposed changes by Labour?

Answer: Yes.

Question 3: I  have an SMSF and I’m going to retire shortly. I also have investments in my own name. If my income on my personal investments is under the tax free threshold, will that still be tax free, noting I will also be collecting a pension from my SMSF?.

Answer:  If you are 60 years or over and are not over your transfer balance cap, then your pension income from your SMSF will not be assessable and you will be able to access the tax free threshold of $18,200 for other investment income.

Question 4: In regard to the Woolworths share buyback, could you please advise on the relative merits of participating for shareholders whose super funds hold shares in excess of the $1.6 million cap ?

Answer: Please see my article here which looks at the situation funds in pension or  accumulation modes (0% and 15% tax rates). Assuming not segregated assets, you will need to apportion the buyback proceeds, depending on the amount over $1.6 million.