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Imputation credits policy fails fairness test

Wastepaper basket.

Industry claims cash refund proposal misses the mark.

The SMSF Association has labelled the federal opposition’s proposal to abolish cash refunds for excess imputation credits often claimed by superannuants as an unfair strategy purely aimed at SMSFs.

Under the proposed policy, ATO refunds from imputation credits cannot be claimed if an SMSF is paying no tax in pension phase and none of its members are receiving any form of age pension from the government.

Opposition leader Bill Shorten declared 200,000 of the 600,000 SMSFs in the country were the policy’s main target and the proposal would not affect 92 per cent of the 12.8 million Australians who lodge tax returns.

Further, axing the dividend refund would create a budget saving of $10.7 billion over the final two years of the current forward estimates and $55.7 billion over the next decade, according to Labor.

The SMSF Association strongly opposes the abolition of imputation credit refunds and said it unfairly singled out SMSFs, a sector of the community that has been diligent in saving to be more self-sufficient in retirement.

“SMSFs put strategies in place under the existing rules – rules that have applied to dividends paid on or after 1 July 2000 – only to find that politicians have again proposed to rewrite the rule book,” chief executive John Maroney said.

“Our calculations show it will cut about $5000 of income from the median SMSF retiree earning about $50,000 a year in pension income.

“To be saying these people won’t be paying any more tax is just semantics.”

Maroney warned viewing all SMSFs as “belonging to the mega-rich” was an oversimplification.

He also criticised the most recent amendment to the proposed policy offering an exemption for some SMSFs.

“Under Labor’s proposal, the only SMSFs exempt are those that currently have at least one member receiving the age pension,” he said.

“And in the future, there will be no protection for SMSF retirees who may need part-government support to supplement their superannuation income, creating an unfair, two-tiered and complex treatment of SMSF members who access the age pension in retirement.”

SMSF members who have saved to be self-sufficient and avoid relying on the pension will be worse off than people with lower savings but in receipt of refundable franking credits and a part pension, he noted.

Dividend imputation was introduced by then-Labor treasurer Paul Keating in 1987 to avoid double taxation, however, cash refunds began under the Howard government in 2001.

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