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.