Franking Credits Proposal
Hot Election Topic explained – Franking Credits Proposal
What is the proposal?
The House of Representatives Standing Committee on economics has announced an inquiry in the implications of removing refundable franking credits. The inquiry is going to report on the use of franking credits and who franking credits support and who would be impacted if they were removed and what implications it would cause.
It’s fairly obvious who it is going to affect, mainly retirees and SMSF’s who are direct shareholders who have made long term retirement investment decisions based on their ability to claim refunds on their franking credits. Sadly, it may affect retirees who are paying high levels of Daily Care Fees and other aged care costs.
ALP leader Bill Shorten made amendments to the original proposal to scrap funding credit surplus cash rebates, exempting all those who receive a pension or part pension. The Future Fund is also exempt.
The ALP proposal would largely affect SMSF’s who do not receive a part pension and that are below $1.6m who are investors who pay little or no tax.
Industry Super funds are less impacted as they typically have tax liabilities against which to offset franking credits.
This is a proposal by the ALP. To become law, it will require:
- ALP to win the next election: and
- Bipartisan agreement or favourable Senate outcome needed to pass legislation – cross bench Senate support to pass through the Upper House;
- Chris Bowen (Shadow Treasurer) has indicated the policy will apply from 1 July 2019.
The ALP franking credit proposal seeks to abolish the “net refunding of franking credits” but franking credits themselves are not removed. Australian investors can still use franking credits to offset income tax payable, but will not be able to receive a net refund of franking credits.
To see how you may or may not be affected please refer to the following table:
(This not to be taken as advice is it based on an interpretation of ALP proposals, which can change any time! )
If you would like to discuss further please give me a call on 07 54379900.
Article written by Kirk Jarrott – Partner Poole & Partners Investment Services Pty Ltd.