Colonial First State executive manager of technical services Craig 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, he said that it’s impossible to say that large pooled funds will never 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.
“In this case, the ALP proposal would result in the loss of cash refunds for impacted super funds and result in any investment options, including both retirement phase and accumulation phase options, with excess imputation credits having reduced.”
Mr Day said that it’s also important to understand that a member of a pooled super fund will never see an actual credit to their member account for the refund of any imputation credits.
“Instead, these amounts will be included in the assets of the relevant investment option and will therefore be reflected in the unit price,” he said.
In terms of superannuation wrap structures, Mr Day explained that trustees hold specific assets for each member in an individual investment account.
“However, to ensure all members are treated fairly, trustees are required to account for tax at the individual account level as well as at the fund level to ensure each member pays the appropriate amount of tax or receives an appropriate amount of refund where they have excess imputation credits in their investment account,” he noted.
He explained that if a superannuation wrap had two member accounts and one of those, Member A, had $100 of excess imputation credits, and the other, Member B, had a $100 tax liability owing, the fund would be in a nil tax position.
“However, to ensure that Member B does not inappropriately benefit from the trustee using Member A’s $100 imputation credits to reduce the fund’s tax liability to nil, the Trustee will still deduct the $100 tax liability from Member B’s account and then use that to internally settle a $100 cash refund on Member A’s account,” he said.
“In this case, it’s important to note that unlike pooled super funds, members with excess imputation credits will actually receive a credit to their cash account for the value of their excess imputation credits — rather than the value of any excess credits being included in the unit price of a pooled investment option.”
Mr Day said that superannuation wraps may be more exposed to the ALP proposals compared to large pooled funds as they tend to have larger proportions of older retired members with larger balances in the retirement phase compared to pooled funds.
As a result, many superannuation wraps, he said, may already be in a net tax refund position due to having surplus imputation credits.
“For example, in the previous case study, if the retirement phase member, Member A, had $200 of imputation credits instead of $100 due to having a much larger balance, the fund would be in a $100 net refund position taking into account Member B’s $100 tax liability,” he explained.
“In this situation, the fund would not qualify for a refund to its excess credits under the ALP proposal and Member A would only receive an internal refund of $100 instead of $200.”
