Credits can be used to offset tax owed by the shareholder.
For people who pay little or no tax, such as super funds and retirees, excess franking credits are paid out as cash refunds.
Labor will end those refunds, except for people covered by its “pensioner guarantee”.
The guarantee means anybody receiving a Centrelink age pension will still be eligible for refunds.
A limited exclusion for SMSFs applies only if one member was receiving a part or full pension before March 28, 2018.
As a result, not only will SMSFs be treated differently to other types of investors – people who hold shares in their own name or have their super in an industry or retail fund – but some lower-balance SMSFs will deliver better incomes than those with higher assets.
Of course, people with higher balances could opt to draw down more of their capital.
“Individuals with the same circumstances, in the same refundable position, will incur different results depending on the vehicle they choose to hold their shares,” said Mr Maroney, who was in Canberra this week to lobby against the policy.
CPA Australia external affairs general manager Paul Drum said the policy failed “both simplicity and fairness tests, creating groups of winners and losers”.
“As anticipated, the franking credit policy review has become a political football,” he said.
“It has degenerated into a class warfare debate, particularly on social media.”
There have been claims that retirees will seek to sell down their assets in order to qualify for the age pension.
This strategy might work for those who own share portfolios in their own name.
But SMSFs without at least one member in receipt of the age penion before the March 28, 2018, cut-off date will be denied refunds, prompting predictions of an exodus from SMSFs.
The SMSF Association gives the example of a home-owning couple with $700,000 in an SMSF who qualify for Labor’s “pensioner guarantee”.
Despite having a lower balance, the couple with the $700,000 balance will receive more income ($50,900) than a home-owning couple with $900,000 in an SMSF ($45,000) because the latter is denied franking credit refunds.
Again, the better-off couple could choose to draw down more of their capital.
Most – but not all – members of ordinary super funds will not be affected because these funds have lots of members still paying tax and can therefore fully use their franking credits.