SMSFs likely to switch to international shares under Labor franking credit plan

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SMSFs are likely to switch from Australian shares to international equities if Labor’s plan to stop refunds of dividend franking credits goes ahead.

Labor plans to stop refunds of excess franking credits for most taxpayers, with exemptions for Age Pensioners and some SMSFs.

A survey of SMSF trustees by SuperConcepts has found that 72% of respondents plan to change their investment strategy in response to the loss of franking credit refunds.

61.6% of respondents said they would shift to international shares. Managed funds, term deposits, fixed interest and property were roughly equal in terms of interest as alternatives to invest in instead of Australian shares.

“This is a big concern for the Australian Stock Exchange, a big concern for local companies contemplating the cost of capital from overseas sources, and a big concern for the future ownership of local firms if its no longer viable for locals to invest,” said SuperConcepts CEO Natasha Fenech.

66.8% of respondents expected the change would impact them a ‘great deal’, with 20.3% expecting a ‘significant’ impact and 8.9% ‘moderate’. Only 4% believed stopping excess franking credit refunds would have little or no impact on their SMSF.

Some SMSF trustees are considering shutting down their fund in response to the tax change.

“It is concerning that 14.5% of respondents are thinking of closing their SMSF as a result of this policy which doesn’t apply tax policy consistently to individuals across different superannuation structures, while 1.4% thought that they might withdraw their super and go to an aged pension,” said Ms Fenech.

“SMSFs play a critical role in the super sector to provide choice and competition against industry and retail funds, and it’s clear that everyone benefits from the competition as it keeps fees in check when consumers have adequate choice in the market.”

“Without a doubt this is one of the most pressing election issues facing SMSFs in pension phase and the choices being forced on them are not what they want. It will drive capital away from Australian companies and therefore doesn’t allow for Australians to support brands remaining locally owned.”

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