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Franking credits are on the public’s radar again as the announcement of a Federal election looms. Both the Government and the Opposition are using it as a Federal election issue.

In March 2018 the Opposition made an announcement that, if elected, they would make changes to the dividend imputation system. However, they do not propose to make changes to franking credits themselves, but to remove franking credit refunds. Labour quickly amended its proposed policy by adding a ‘pensioner guarantee’. This means that pension and allowance recipients, including part-pensioners, would be exempt and would continue to receive cash franking credit refunds.

The Opposition’s proposal is to change the dividend imputation system back to what was in place before John Howard’s 2001 changes, more in line with what occurs elsewhere in the world.

This is a proposal only, made by the Opposition who need to win the upcoming Federal election before they can propose a Bill to Parliament. It would then need to be passed by both Houses before it can be enacted.

The details of the proposal are not yet available, however, based on what the Opposition have released, our current understanding of the proposal to remove excess franking offsets is that:

  • The proposal intends to prevent investors from claiming a cash refund from franking credits that they cannot offset against income tax. That means the proposed change is to excess franking credit offsets (refunds), not franking credits themselves.
  • Pensioners, part-pensioners and allowance recipients (including recipients of an Australian Government pension or allowance including Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance) with individual shareholdings are exempt, and will continue to receive cash franking credit refunds.

Super SA tax advisors suggest there is ‘unlikely to be a material adverse impact (subject to policy detail)’ to Super SA members. This is in reference to Super SA products only and does not necessarily apply if you have other products or investments.

For an explanation of the terms and jargon used around this debate, the Australian Broadcasting Corporation has an informative article here.

 

The information in this document is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Super SA recommends that before making any decisions about your Super SA product you consider the appropriateness of this information in the context of your own objectives, financial situation and needs, read the Product Disclosure Statement (PDS) and seek financial advice from a licensed financial adviser in relation to your financial position and requirements.

Super SA and the State Government disclaim all liability for all claims, losses, damages, costs or expenses whatsoever (including consequential or incidental loss or damage), which arise as a result of or in connection with any use of, or reliance upon, any information in this document.