canberra-266338__340, Walker Wayland

Mar 2018 1 Minute

Labor’s proposed changes to franking credits

labor's proposed changes to franking credits. Currently if an entity, including a superannuation fund, receives franking credits from income such as dividends or distributions from trusts or managed funds, then the full franking credit is refunded.  The Labor opposition is proposing, if it wins government, to stop the refund of excess credits back to entities. To illustrate the proposed changes and the tax effect on superannuation funds see the scenario below.

Getrich Superannuation Fund’s only income is from investments in ASX listed companies.  The tax calculation under the current law and the proposed Labor model is as follows:


                                                                               Current Law     Proposed Law
Fully franked divided                                      30,000                  30,000
Franking credits                                              12,857                    12,857
Taxable income                                             42,857                   42,857

Income tax                                                       6,429                     6,429
Franking tax offset                                          (12,857)                 (6,429)
Tax refund                                                     (6,428)                   0

Unused franking tax offset                             0                             6,428

SMSF Net Cashflow                                        36,428                 30,000


In this example the fund is $6428 worse off cash wise by not being able to receive the excess imputation credits as a tax refund.