Critical carveout date flagged as election looms

The carveout means that SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes.

Mr Butler noted that the carveout for the policy will apply to those on the aged pension, the disability support pension, the carer payment or allowance.

“If it is an SMSF, then as long as you have one pensioner or allowance recipient before 28 March 2018 in that fund, then the fund will be exempt from the policy change,” he explained.

SMSF practitioners, he said, should be looking at their clients’ files and assessing which funds as of 27 March 2018 had at least one member who was a recipient of a pension or allowance.

“If that’s the case, the fund will not be subject to the non-refundability of franking credits,” he said.

For those funds that will be hit with the new measure if Labor wins the election, SMSF practitioners may want to start considering some of the planning strategies for these clients, he said.

“There are planning strategies being thought up, particularly around dividend distribution from private companies in the lead-up to the implementation of this proposal if Labor does get in,” he said.

Mr Butler said that if Labor’s policy is implemented, it will apply from 1 July this year.

“This means that companies will need to carefully examine what their optimal dividend distribution will be prior to 1 June, given this proposal,” he explained.

“If the refund is available to individuals prior to 30 June, but not afterwards, then a greater distribution prior to the proposal may be more attractive.”

For clients that have private companies, it’s necessary to think about what the distribution position is this year.

“A lot of companies are corporate beneficiaries of family trusts. So, if the family trust has been distributing to the bucket company, then this bucket company might have a lot of accumulated reserves, so it’s really something that you should be focusing on,” he said.

“It may be the right time to flush more of [those accumulated reserves] out of the system in case Labor introduces this policy and you end up burning franking credits.”

Some SMSF members may also consider whether having a pension in retirement phase is worthwhile if the fund is “burning” excess franking credits, he said.

If two members each have $1.6 million, Mr Butler said, they will be no worse off by converting their account-based pension to accumulation phase as they substantially reduce their franking credit wastage.

“The SMSF also accumulates greater assets for the longer-term in the concessionally taxed superannuation environment by not having to pay out annual pension payments to its members,” he explained.