Franking credit refunds PBO estimates in doubt

Originally posted by HAC30: ↑

If this policy goes into place, there are plenty of loopholes to exploit to still get franking credits... it will save a mere fraction of the headline number but that's what labor are actually banking on.

Industry and retail super funds declare their tax as one entity at the end of year. This means that the tax paid on contributions and earnings within accumulation get pooled with pension accounts, the fund declares one tax liabIlIty and then provide a tax adjustment credit at the end of the year to pension accounts. Most industry and retail funds are in a net tax paying position by a long way due to a lot of employer fund arrangements (accumIators etc).

All you do to keep getting your franking credits is move your SMSF to an industry or retail fund that has other tax payable by the total members to get refunds on the franking credits. Labor know this and are banking on this happening hence this policy is about stopping movement from industry funds to SMSFs under the guise of budget repair.

Alternatvely you get the kids to join your SMSF so their tax payable is offset by franking credits from those in pension. It's not only dumb policy from the perspective of stopping people saving but it's not even going to work. it would be easy to legislate that super funds can't offset pension franking credits against contributions tax/accumulation earnings tax but then the policy wouldn't direct additional flows to industry super funds.

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"it would be easy to legislate that super funds can't offset pension franking credits against contributions tax/accumulation earnings tax but then the policy wouldn't direct additional flows to industry super funds".

Hi Hac,
And in fact, it may be worse than that re additional flows to industry funds.
There would suddenly be an incentive for those in pension phase in a pooled fund, to leave , and set up a smsf based on investments that do not involve franking credits.

Now as a defensive move, the pooled funds set up separate funds with the same aim for pension phase clients, and boosts the franking credit based investments in their accumulation clients to offset the tax now payable by them.

All ends up with minimal revenue.

I am reminded of dogs chasing tails whenever I think about this policy, and how the ALP have approached it.

Easiest way around the trap they have set themselves, is to tax pension outflows, that is if they really want increased revenue.
cheers