Ask Paul: I'll lose $50,000 in franking credits under Labor


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Q. My wife and I have a self-managed super fund that stands to lose about $50,000 in franking credits should modified tax rules be imposed if a Labor government is voted in at the next election.

What alternatives do I have to maintain my income? - Thomas

A. Many of us are in the same boat, Thomas. Personally, I am going to wait to see the detail and timing if we do get a change of government at the next election.

ask paul million franking credits

Like you, I don't want to see any excess franking credits that are in my super fund go to waste.

A change in strategy has to wait until we know the exact details, but I suspect many people will look at their assets inside and outside super and plan accordingly.

While I hate shuffling my investments due to changing tax rules, it may be necessary in these circumstances.

If we do get a Labor government, Money will analyse the rule changes and provide potential solutions.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
December 12, 2018 5.31pm

Am I right in thinking that franking credits equate to about a 1.4% return on your capital if the dividends are fully franked? If so then $50,000 means a capital value of about $2,570,000 in investments paying fully franked dividends. Assuming a reasonably balanced portfolio where shares make up half to two thirds then the overall value would be such that $50,000 is not a major drama, in fact a problem I suspect many would like to have??

December 12, 2018 6.03pm

Thomas and his wife have probably worked very hard, been sensible with their spending and intelligent with their investments for a long time. And whatever they did, they did it u see the rules of the day.

With their level of income they are saving the taxpayer $36K per annum in age pension benefits foregone. They also won't qualify for other "benefits", saving the taxpayer further money.

Their reward for their success is to have $50k per annum stripped from their income.

This policy is outrageous.

December 12, 2018 7.39pm

Tony - their $50k in annual franking credit refunds (on a capital value of $2.5+ million) means that taxes for other people such as median wage earners need to be much higher to compensate.

I would suggest that they are in fact costing the taxpayer much more than the value of the age pension. Do some research on the cost to the budget of Super tax concessions and you will see.

December 12, 2018 9.33pm

Martin - franking credit refunds are not a super tax concession. They are an element in achieving taxation fairness between investments through corporate structures and those in other structures. The credits represent tax paid by the company on the individuals behalf - and so should be refundable to all individual Australian taxpayers For this reason, it is worth noting that under Labour's plan, higher income earners like politicians will still get the refunds while low income earners will not.

December 13, 2018 6.16am

Thanks for you comment Martin.

We shouldn't conflate two issues. Refundable franking credits and super tax concessions.

If Labor believe that Superannuation tax concessions need to change then they should put a policy on that to the people.

john cassidy
December 13, 2018 6.54am

Tony you have my vote, people that scrimp and save, who are prudent with there money, who send there children to private schools, thereby reducing the burden of education costs on tax payers, people who take out expensive health insurance, freeing up the heath system, and those self funded retirees who don't go cap in hand for a state funded pension at age 60, should be applauded as model citizens, not penalized because they are the easiest option of capitol raising for governments that have miss managed the purse strings

December 13, 2018 7.01am

Totally agree - I would be in favour of a 15% tax on pension earnings. This would be the answer to mitigating some of the problems we currently see, and would result in a better outcome than the proposed policy in my view.

It's just the 0% tax rate on pension earnings in particular exacerbates this issue.

You have this ridiculous bleating from the Government that low income earners are being penalised the most. Well of course, if they are citing taxable income stats. Since pensions are exempt from the tax system, you have pensioners like our Ask Paul questioner on $180,000 a year being counted as low income!

December 13, 2018 11.24am

John, I couldn't agree more.

Unfortunately, not many people fall into the category of person that you describe.

I believe the stats are than less than 40% of voters pay net tax and less than 60% make a net cont rovution to government costs (I.e once costs for thing such as govt provided education and health are taken into account). Basically, the top 20% pay for everyone else.

It is simply politically expedient to continue to take from the minority and give to the majority.

December 13, 2018 5.46pm

Martin, you obviously do not understand franking credits to begin with.
Besides this attack on our savings by dirty Labor, the Termite government had already started taxing super on income earned from funds over $1,600,000. This limit was never mentioned by government during the years we were locking our hard earned money away in a super fund so we could live a comfortable life in retirement without having to bleed off today's taxpayers. I would have loved to have worked less hours, had more recreational time, toys & holidays during my working years.

John Huckett
December 13, 2018 6.43pm

I'm with you John and Tony. "Unfortunately" my wife and I fall into the category of working hard all our working life, PAID our taxes all they way and saved a modest amount of money for our retirement not to be a burden on the Government in any way. Now Bill Shorten wants to steal that hard earned money from us. We are both Aussies and come from hard working backgrounds and always paid our dues. It is just not fair and definitely not the Australian way. We are extremely disappointed that the Labor Government has even contemplated this action.

December 13, 2018 7.01pm

Alan, I understand the franking system perfectly, and yes I understand the problems with the Labor policy. But it's good they have started a conversation on it, because it needs to be had.

The change the government brought in for balances over $1,600,000 was to address the sustainability of the system, because people like yourself are essentially getting a free ride.

Even still, you get pension earnings on your $1.6m tax free and only above that do you pay a modest 15%.

You'd have to earn almost $200,000 within super to pay the same amount of tax your children and grandchildren would pay on a median type wage of about $70k.

How is that fair? Please stop your over the top woe is me attitude and recognise how good you have it over everyone else. It really is sad to see people like you say "everyone should pay tax except for me".

December 13, 2018 8.16pm

Dave you have communist leaning ..just like labour

Grateful Dave
December 14, 2018 4.47pm

Martin - aren't we forgetting something here? What about all of the tax that said individuals getting a 'free ride' in their self funded retirement have paid throughout their working lives? What is the cumulative 'hard dollar' amount of this? Why isn't this ever mentioned in adult conversations about what is 'fair'. If I was them - I'd be asking others to "JST" (eg. Just Say Thankyou). Most people who get to a position to self fund in retirement don't get their through luck. Most of them didn't inherit their jobs or businesses which they toiled away in. Wouldn't it be great to see retirees recognised for their total 'hard dollar' tax contributions that they've paid through their lives (to governments of ALL persuasions) - and for our society to THANK them for their contribution - instead of the current situation which sees many of them being vilified for not paying enough tax....
It believe is non-sensical to compare the tax they pay in their retirement to their Grandchildren earning a wage.

December 14, 2018 10.53pm

John, I understand where you are coming from.

If you are retired and have your retirement funds in super, you will be able to plan around the rules.

Talk to your tax and financial advisors. They should by now have a plan around this issue for you.

December 16, 2018 8.13pm

You paid tax too ? Guess what, so did everyone else. It doesn't make you special.

In fact, Gen X and Y are the ones who will also lose out because EVERY super fund in accumulation phase is a 15% MTR and franking credits cost us money too; you don't hear about that though.

Why do the boomers think that they are so special because (a) they paid taxes and (b) they will be 'self-funded retirees' ? Everyone in Gen X and Y will have to be because there isn't enough money to go around.

Boomers had a choice - be independent, self funded retirees or rely on the Government. Unfortunately, many were daft enough to do the latter and then claim "oh, it's because we never had enough money to do the former"...garbage, you cut your cloth accordingly, it's called "live within your means" and be smarter with your money. That's why Gen X and Y, from NECESSITY, will be able to do both.

December 16, 2018 8.14pm

Gen X and Y won't qualify for any of that because there won't be enough money when they retire. Where's your concern for them ?

January 9, 2019 8.56am


February 5, 2019 9.27am

For they built their investments under the rules of the day, including when those rules changed to include the refund of excess franking credits, changes to unlimited tax free super, etc etc. The rules that changed to give them a leg up are being changed once again to favour other taxpayers. Just deal with it and move on. It's just the 'rules of the day' after all.

As a financial planner I told all my clients to enjoy these sort of changes while they last but to not get too attached to them, as they will turn out to be unaffordable over time. And that's what's come to pass. In the past there were limits on how much you could have tax free in super & we've simply returned to those days. As it stands paying a 15% tax rate on any super over $1.6M is still a pretty sweet ride for those who have managed to achieve that level of super.

There's no free lunch anymore. "Thomas & wife" will be fine, I dont see them lining up for handouts from the Salvos just yet.....

February 5, 2019 9.31am

'shouldnt conflate two issues'......impossible when they are extricably inter-linked. The issue is that there is 0% tax on pension balances up to 1.6M and then only 15% on any balance above that. Pension payments are tax free. Almost as good as living in a tax haven but people are cranky that they wont get paid by the government any more. The same people who watch A Current Affair or Sky News and complain about 'dole bludgers''s just greed.

February 5, 2019 9.35am

Alan, unlimited tax free super pensions has only been a thing for 10-12 years. Prior to that we had Reasonable Benefit Limits (RBLs) that limited how much you could have in super tax free. That's not that long ago. You've had a great free-kick for a decade or more, and you'll still be on a pretty sweet wicket where you'll still pay no tax on your millions, you'll just lose out on getting a bonus from the government.

February 5, 2019 1.49pm

The ALP simply want to smash Do It Your Self Super Funds in the hope that these Superanuants will be forced to join an Industry Fund which through Union Directorships essentially end up bankrolling the Labour Party. These Funds have been allowed to keep their Franking Credits. My DYSS costs me $2000 for Audit and the Tax return and I don't get paid a salary. If I go into an Industry Fund it will cost me between 30K-40K. Industry and Retail Funds have been increasingly losing members to Do It Yourself Funds because they offer better returns and their owners have complete control over the Funds Investments and the costs are about 5% of what an Industry Fund charges and the Retail Funds cost even more! ITS A NOBRAINER!

March 3, 2019 1.17pm

It's Labor ... and the question was very legit. Your smart arse comment was just that, stupid!

March 3, 2019 1.46pm

What a lot of .... In order to pay $30-40k pa to an Industry Fund to manage your super it means that you MUST have >$10 million in super, and this is based on what it costs me.

I think you need to be a special kind of greedy person to believe that with that amount of income-producing asset you would need to hold on a gift provided to you by a government intent on making wealthy people richer.

I'm happy to have my credit imputation used for health and education, and I'll continue to have a very good life, do all the things I do now, and my super is less than 1/10th of yours.

March 4, 2019 8.45am

@ Mike Pretty fed up with the baby boomer bashing. Gen X and Y get so many handouts now that were not available in the past. Baby bonus, family tax benefit A, family tax benefit B, first home owners grant, child care rebates, off the top of my head. We didn't get anything like the monetary amount the taxpayer hands out to families nowadays. So yes, we pay taxes, and we pay for the handouts Gen X and Y get. We pay taxes and we have made our way through life without handouts from the taxpayer all through our working life. Perhaps that is why we have an issue with the constant bashing the younger generation gives us. Look at things in perspective Mike, and understand that life has not been as cushy as you choose to believe for the older Aussies. The only way people have been able to get where they are is through had work, skimping and scraping. Certainly not through handouts lije are the norm now. The fact that you have such a poor attitude towards 'the daft ness of people who choose to look after themselves in retirement' shows how dependent the younger generation have become on handouts, and clearly see it as their right. We don't.

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