Labor tax proposal to hit over 2m APRA fund members

The FSC said the recommendation clearly rejects the removal of refundable franking credits on the basis that it is inequitable.

“However, we note the report doesn’t address the impact of franking credit refunds on large superannuation funds,” it stated.

FSC chief executive Sally Loane said the removal of franking credits would result in the unfair treatment of millions of Australians who invest their retirement savings in some large super funds.

“Figures highlighted in the FSC’s submission to the inquiry show that up to 2.6 million Australians that were in large super funds in 2015–16 received refunds and up to 3.5 million in 2014–15,” Ms Loane said.

“It is therefore somewhat ironic that the report underestimates the number of people affected by changes at about 900,000.”

A survey conducted by the FSC, and detailed in the FSC’s submission to the inquiry, she said, showed that the removal of refunds could on average cost $850 per year for retirees in affected large funds.

“A removal of rebates could result in numerous super investors facing significant financial loss, and an unfair result where many self-managed super funds and some large super funds lose access to refunds, while other large funds are unaffected,” she warned.

“Despite the FSC’s reservations about the report, we nevertheless still support the main recommendation of the majority report that franking refunds should continue.”

While the debate around cash refunds for franking credits has been largely focused on SMSFs, Colonial First State executive manager of technical services Craig Day has also previously explained the impact that Labor’s policy could have on APRA super funds and wraps.

Mr Day said that, while large pooled superannuation funds with significant numbers of members in the accumulation phase relative to members in the retirement phase are unlikely to be impacted by the ALP, it’s possible that some funds may have a larger proportion of retirement phase members.

Funds with a larger proportion of accumulation phase members will generally have sufficient levels of taxable income, including assessable contributions, to fully utilise any imputation credits received, Mr Day explained.

However, depending on the nature of pooled funds’ membership both now and in the future, it’s possible that some large pooled funds could be impacted.

“For example, a combination of a greater proportion of retirement phase members, a lower inflow of assessable contributions and increasing deductible costs combined with negative or reduced investment returns, could result in a fund being in an overall net refund position in a particular year,” he said.