There are 2 major changes on the horizon for SMSF’s should Labor win the next election, which are outlined below. These proposed policy changes will affect those clients in pension mode and those seeking to purchase property within super.
Limited Recourse Borrowing Arrangements (LRBA)
The first change proposed under a Labor government to SMSF’s will be the ban on borrowing within an SMSF. The legislation is part of Labor’s promise to make housing more affordable. The Labor party announced part of the housing affordability crisis was due to the increase in property
purchased within a SMSF (using borrowings). The value of property currently held in SMSF’s is $24 billion. Therefore, Labor believe the removal of the ability for a SMSF to borrow will lower the cost of housing.
The above proposed legislation will not affect SMSF’s that currently have property using borrowing within their fund. However, the proposed policy is silent on what affect the proposal has on existing borrowing should a SMSF wish to refinance.
Franking Credit Refunds
The other issue to affect a SMSF will be the refund of excess franking credits. At this point in time, the proposed policy will disallow a refund of excess franking credits to a SMSF. For those clients in pension phase, this could have a substantial impact on the ability to self-fund retirement. The
removal of the franking credit refund could also mean the SMSF members may have to rely on the age pension.
However, it could also lead to an increase in prompting younger family members to become members of the SMSF.
For example, under the current legislation, a fund with two members in pension phase earning $17,500 in fully franked dividends, with $7,500 in franking credits, now receives a refund of $7,500. Under Labor’s policy, no tax refund of the franking credits would be received, and the members would be $7,500 worse off.
For example, under the current legislation, a fund with two members in pension phase earning $17,500 in fully franked dividends, with $7,500 in franking credits, now receives a refund of $7,500. Under Labor’s policy, no tax refund of the franking credits would be received, and the members
would be $7,500 worse off.
The above advice is general advice and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.
Author
Kim Jay
