Franking credits - gone?

Would be interesting to read the minutes of this 'Investment Policy' meeting with 'the boss'!

 

Would only confuse as it’s unique to our level of wealth, stage of life, tax circumstances, risk tolerance, behavioural attributes, goals and aspirations. Plus there’s some things the Boss doesn’t like divulged in the public domain.

 

Ha ha,all good but was wondering what PT take & plan would be so maybe we'll get an update from him sometime.

 

A fully franked dividend of $95k grosses up to about $135k, the franking credit fully offsets the marginal tax paid on $135k...thus the proposed changes would have no effect if investment held in individual name or trust.

I imagine PT portfolio size would deliver fully franked dividends much larger than this. Likely it would effect hos SMSF holdings though.

Franking credits were just the cherry on top, I'd expect his strategy would remain unchanged.

 

Since the Super pension limit was introduced I’m guessing he and his wife would have rolled back quite a bit of SMSF into Accumulation that still benefits from 50% of the franking credits. In fact given they don’t need SMSF pension income they could just roll back the lot to keep it in Super longer. Would have to be mindful of death tax though. In own names it’s highly likely he’ll be uneffected given the size of their portfolios.

 

To generate grossed up dividend income of $135k requires around $2.4m shares (assuming 5.7% gross yield). So holdings of that size (or above) in personal name should be no worse off if dividend credits are scrapped.

Unfortunately I hadn't planned on needing a $4.8m portfolio between my wife and I so we (and many others) will be negatively impacted by the change if it goes through.

 

A few calculations to demonstrate impact:

• Entire Portfolio assumptions
  • Australian equities 4.00% yield - franking 100%
  • International equities 2.00% yield (allocated as 80% - Australia)
  • REITs 3.50% yield - 15% allocation
  • Cash 1.50% yield - 5% allocation

Here is the impact of the Franking credits based on different Australian Equities allocations:
100% Aus

80% Aus

60% Aus

40% Aus

20% Aus

10% Aus


Amalgamated comparison






Conclusions

• The more you allocate to Australian equities the more impact (duh)
• More capital means less impact (assuming no other tax minimisation)
• All the drop off points (where impact is reduced) are for capital less than $750K
• Allocating more into international can reduce the impact (assuming that international and Australian total return is equal)

 

Hi guys, I am just starting my share investment journey and going through this thread helped a lot especially about whats coming next. So what I understand is that having the shares in a family trust is still a good idea as wife is only part time at the moment because of the kid and we plan to have more so we don't expect much income at her end for the next few years.

Having the trust will help distribute franked income to me and unfranked to her in case this policy is implemented otherwise will just distribute most income to her. Does that sound like a plan?

 

If your income is above 87k bad plan.

 

reason? my understanding is that the shorten plan impacts the imputation credits and cuts the cash back from tax office. I will distribute the unfranked income to my wife so she benefits from the tax free threshold in case we have to.

 

If your income is more than 87k you pay additional tax on franked div. distributed to your wife the tax is lower. Thats it.

 

aah yes... off course. point is distribution will still make sense so family trusts are still relevant. I can always rework how much to distribute at the tax time with the accountant. sounds alright?

 

And of course one of Labor’s core election policies is to tax Disc Trusts at a minimum of 30% in the hands of the Beneficiary.

 

Labor will:
- remove dividend imputation credits
- remove negative gearing on IPs
- increase % on the maximum tax bracket (i.e. reinstate the budget repair levy)
- minimum 30% tax on discretionary trusts
- there was talk of reducing the CGT discount as well

I swear, there less incentive in being financially independant and keeping your money in australia. I am all for minimising the equality gap but targetting anyone that is saving and attempting to better their wealth is straight class discrimination.

 

does that mean any income received from a DT will be taxed at minimum 30% and maximum at the marginal rate?

 

That's what Labor proposes.

 

Is there a solution proposed for this 'problem' so far or i there a thread I can read up?

 

The background politics heats up - the vested interest are mobilising the lobby - just received this in my e-mail. I'm sure they are more worried about their clients than the impact on their business when having a SMSF make sense for a lot fewer people.

 

Agree. Consider the target for each of those changes. When there are bettet opportunities to increase tax revenue from big business yet Labour still target those aiming to be self sufficient, you wonder if someone is in someone's pocket.

 

Not sure. The Labor is not in power yet. Even if they win the office is not guaranteed that this policy will pass in its current form. I suppose we just wait and see... and vote Liberals in the meantime .