The Federal Opposition’s proposed changes to Australia’s dividend imputation system may have consequences for superannuation funds which go well beyond pension phase self-managed superannuation funds to impact a broad range of superannuation offerings, according to Plato Investment Management.
Plato managing director, Dr Don Hamson has warned that the Labor proposals may represent a ticking time bomb for the entire superannuation industry which the Opposition may need to defuse in Government through the implementation of caps or other measures.
Hamson said the proposal, while honourable in its intent to cut costs and discourage abuse of the system, might potentially impact a broader range of stakeholders.
“The ALP proposal will clearly impact many pension phase SMSFs, but Plato research suggests it has the potential to impact many other superannuation funds,” he said.
Hamson suggested that data from the Australian Taxation Office (ATO) and analysis of statistics from the Australian Prudential Regulation Authority (APRA) backed up the Plato research, showing that many APRA-regulated funds were also likely to be affected, including potentially some industry and retail superannuation funds.
“The impact of Labor’s proposal, therefore, may be broader than initially predicted,” he said.
“Any superannuation fund with a large percentage of pension phase investors may be receiving a net refund of franking credits now,” Dr Hamson said. “The likelihood and size of franking credit refunds is also related to the amount of franking generated (higher), the level of total taxable income (lower) and the level of contributions tax paid by accumulation members (lower).”
“When investment returns are low, reducing taxable income, a higher percentage of superannuation funds may miss out on some or all of their franking credits, exacerbating the low investment returns.”
“As the superannuation industry matures, and more members move to pension mode, we believe this proposal may represent a ticking time bomb for the whole superannuation industry.”
Hamson suggested that a better way to eliminate the few extremely large franking credit refunds would be either to limit the total amount people could invest into super, or limit the maximum franking credit refund per person.
