The House of Representatives Standing Committee on Economics today announced an inquiry into the implications of removing refundable franking credits. The policy was proposed by ALP in March this year.
The inquiry may also look at expected behavioural change by investors, including increased dependence on the pension, and if there are carve outs applied, what this might mean for additional complexity to the system.
“The ability for investors, including individuals and superannuation funds, to claim their full credits is an established feature of our tax system is core to the financial security of retirees,” said chair of the committee Tim Wilson.
“There has been legitimate community concern about proposals to remove cash refunds for their full allocation of credits for individuals and superannuation funds, and that it amounts to a tax on the savings of retirees.”
Tax professionals have been particularly frustrated by flaws in Labor’s claims that this policy does not target middle- to low-income earners.
“It seems to me that this measure could actually allow the rich to accumulate more in super,” said SuperConcepts’ Peter Burgess at the time the policy was announced.
“Transferring some of their pension balance to the accumulation phase may allow them to use all of their franking credits,” Mr Burgess said. “The effect will be more retained in super for longer, as they can draw down super from accumulation phase when they need it rather than being forced to take the minimum pension each year.”
For Liam Shorte, who is both director at Verante Financial Planning and chair of the SMSF Association’s NSW Chapter, Labor’s policy unfairly targets SMSF trustees who are not necessarily wealthy.
“I am apolitical, but I believe this proposal is just bad policy and not equitable,” Mr Shorte told Accountants Daily today.
“It specifically targets one sector and reintroduces double taxation. This will alert those who do not understand yet what they may lose. The loss may only be 10–20 per cent of their income for SMSF trustees, but probably 100 per cent of their discretionary spending. There goes the holiday, helping fund education for grandchildren and the dinner out.”