Animosity could be clouding judgment

Recent policy announcements would indicate the SMSF sector is in for the fight of its life during the term of the Albanese government, however long that might be. To this end, sources have actually told me there is a feeling in Canberra SMSFs have no friends in the corridors of power.

I accept the situation is one the sector must deal with, but a warning should be sent to the people currently in power that whacking people just for the sake of whacking them comes with a pretty hefty price.

In my previous editorial for this publication, I discussed the egregious nature of the proposed additional 15 per cent tax on total super balances above $3 million. This of course is just one battlefront for SMSFs.

A second has been the non-arm’s-length expenditure provisions, with a draft bill having been tabled in parliament to legislate the final operation of these rules.

These two developments have dominated industry discussion over the past six months at least and have had the effect, designed or otherwise, of steering attention away from what could be one of the most alarming initiatives the government is looking to implement – a change to the dividend imputation system applying to Australian listed companies.

No doubt we all remember the ALP’s attempt to scrap franking dividend refunds as a policy during the 2019 federal election – one that turned out to be an abject failure resulting in three more years on the opposition benches.

Well it appears Labor is still looking to change the way franking credits work in this country, but is going about it in a more piecemeal manner this time around.

It is looking to outlaw the use of franked dividends for off-market share buybacks and to restrict their use when dividends are declared as a result of capital-raising activities.

Given the first attempt at amending the dividend imputation system was seen as a direct attack on SMSFs, the conclusion can be drawn these subsequent actions have been designed to ostensibly do the same thing.

If that’s the case, my response is go your hardest. After all we all know the ALP has to provide some payback to the industry funds who now effectively bankroll its election campaigns. But I would advise being careful animosity does not lead to poor outcomes for everyone and not just SMSFs.

Consider this: yes it is irrefutable a change to the franking credit system will hurt SMSFs, but the policy goes a lot further than that.

It is well recognised a large motivation for the home market bias of Australian investors stems from the dividend imputation system. Take any part of this element away and it could result in both individuals and organisations looking for better returns elsewhere and the exiting of monies from the Australian Securities Exchange. And we all know what happens to share prices when positions are sold down. They plummet.

Of course it will see SMSFs take a hit, but it also means industry funds will suffer a decline in investment performance and I’m certain this is not an intended consequence from this measure.

A parliamentary committee hearing conducted on the subject has recommended the proposal regarding franking on dividends resulting from capital raisings be reassessed, so there is reason for some optimism.

However, the ongoing episode perhaps proves animosity has the ability to cloud judgment and should be forever parked as driver of government policy.

- selfmanagedsuper magazine editor Darin Tyson-Chan