# Importance of franking to a SMSF retiree?



## Muschu (15 March 2009)

Just seeking information if people don't mind offering their thoughts.
I am wondering about the significance of the level of franking to a SMSF holder who is already in the pension phase?  eg:  SUN at 100%, QBE at 20% etc.

Comments very welcome.

Regards

Rick


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## YELNATS (15 March 2009)

Muschu said:


> Just seeking information if people don't mind offering their thoughts.
> I am wondering about the significance of the level of franking to a SMSF holder who is already in the pension phase?  eg:  SUN at 100%, QBE at 20% etc.
> 
> Comments very welcome.
> ...




Rick, I have recently moved a large part of my SMSF to a pension phase, so I have an real interest in your question.

As I understand it, bearing mind that earnings in the pension phase are taxed at zero, compared to 15% while in the superannuation phase, the franking level can be significant to the after tax return on investment. 

Using your the two companies in your question, at Friday's close of business, based on the last 2 dividends announced, the after company-tax dividend yields were:

SUN 14.26% ((0.75 divided by 5.26) x 100) 
QBE   7.47% ((1.26 divided by 16.87) x 100)

Based on the franking levels of 100% for SUN and 20% for QBE, for a SMSF in a pension phase, the yields become:

SUN 20.37% ((0.75 divided by (1 - 0.3) divided by 5.26) x 100) 
QBE   8.11% ((1.26 divided by (1 - 0.3), less 80% of the resulting $1.80 - $1.26 = $1.368, divided by 16.87) x 100).

Interestingly, if the franking levels were reversed, ie. 20% for SUN and 100% for QBE, the yields become:

SUN 15.48%
QBE 10.67%.

If I've got this wrong in any way, any corrections would be welcomed.

regards YN.


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## Muschu (16 March 2009)

Many thanks for the comprehensive reply NY. The difference is a significant one.  I apreciate your effort in going to so much trouble.
Regards
R


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## YELNATS (16 March 2009)

Rick, no problem at all. Your question also helped my understanding too.


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## mattlaw (16 March 2009)

If you are already in pension phase and are over 60 then all of the income you receive is taxed a 0%. 

So it doesnt matter either way whether is 1% or 100% franked because you dont pay any tax on it anyway.


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## prawn_86 (16 March 2009)

mattlaw said:


> If you are already in pension phase and are over 60 then all of the income you receive is taxed a 0%.
> 
> So it doesnt matter either way whether is 1% or 100% franked because you dont pay any tax on it anyway.




It does matter, because you can claim the franking amount back, as you do not need to pay tax. So if its gully franked you will get a lot more back than something partially franked


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## YELNATS (16 March 2009)

prawn_86 said:


> It does matter, because you can claim the franking amount back, as you do not need to pay tax. So if its gully franked you will get a lot more back than something partially franked




Thanks Prawn, and here's a quote from E-Superfund:

Quote:
Question: What happens to my Franking Credits from Shares when I commence a Simple Account Based Pension or TRAP (Transition to Retirement Account-based Pension)? 

Answer: Given that your SMSF Tax Rate drops to 0% when you commence a Simple Account Based Pension or TRAP, you will no longer require pay tax on your Fund Earnings.  This means that when you commence a Simple Account Based Pension or TRAP you are entitled to receive all Franking Credits on Australian Share Dividends in cash from the ATO.  Franking Credits simply represent tax paid by Australian companies on dividends your Fund receives.  Given that the company has paid 30% tax and your Fund tax rate in Pension Mode is 0%, the entire 30% tax paid is refundable to your Fund.  Example:  For every $10,000 received in fully franked dividend income, your Fund receives $4,285 as a cash refund from the ATO each and every year the dividends are paid, after you commence a Simple Account Based Pension or TRAP!
Unquote

Also note that these pension arrangements can start as early as 55 years.


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## Julia (16 March 2009)

This situation isn't unique to SMSF's.  Someone who doesn't earn enough to pay tax outside of super will also receive a cash refund from franking credits.


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## prawn_86 (16 March 2009)

Julia said:


> This situation isn't unique to SMSF's.  Someone who doesn't earn enough to pay tax outside of super will also receive a cash refund from franking credits.




Same for charities that hold stocks. If they are a registered charity and dont pay tax, then a simple form to fill out and they get thie franking credits refunded to them.


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## YELNATS (16 March 2009)

Julia said:


> This situation isn't unique to SMSF's.  Someone who doesn't earn enough to pay tax outside of super will also receive a cash refund from franking credits.




They will receive a full refund. In the 2008-2009 year, employees who earn between $6000 and $34,000 who are on on a marginal tax rate of 15%, will receive half of the franking credit amounts.


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## babka (16 March 2009)

Maybe I am repeating myself, haven't read the whole thread, but about 2 weeks ago I got the full refund of franking credits claimed, credited directly to my bank a/c. I had downloaded the form from ATO and did the return over the phone. Refund - within 10 days. I am in an allocated pension fund. Very easy.


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## Logique (24 January 2019)

I see Australian companies and LICs are bringing forward scheduled franked dividend payments, to beat Labor's promise to cancel franking for retirees.  

Big parcels of shares of domestic franked dividend paying companies (eg banks and big miners) are being dumped into the market, as investors rebalance ahead of the expected change.


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## PZ99 (24 January 2019)

Good time to buy up then. Labor have already dumped parts of that policy

So I'm waging a lazy $50 that more (if not most) of it will be blocked and subsequently dumped.


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## sptrawler (24 January 2019)

PZ99 said:


> Good time to buy up then. Labor have already dumped parts of that policy
> 
> So I'm waging a lazy $50 that more (if not most) of it will be blocked and subsequently dumped.



The problem is IMO, if it isn't dumped, the capital in the SMSF's will be taken down another x% as the Banks make up a large portion of the funds.
But the upside is the pension gets indexed in March.
My guess, as I love a conspiracy is, it wont be dumped. The reason being, I think they want to force people in SMSF, to roll them over into industry funds. Otherwise they would have taken the franking credits from the industry funds also, doing it this way, the funds have a 30% advantage.
The end game, roll the industry funds into a Government fund, then use the money for infrastructure.
The wheel turns again.


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## Logique (1 February 2019)

PZ99 said:


> Good time to buy up then. Labor have already dumped parts of that policy
> So I'm waging a lazy $50 that more (if not most) of it will be blocked and subsequently dumped.



I hope you're right, but Labor thinks it's on a winner here, so I'm doubtful they'll alter the policy.

Franking is just the return of over-paid tax. Cancelling the refund is in effect a tax increase on self-funded retirees. Franking refunds go to people who pay less marginal tax than listed companies. By definition they cannot be the silvertails portrayed in Labor's lies. 80% of these people earn less than $37k ann. It's your Nanna and Pop.

But Chris Bowen and Electricity Bill will still be able to get the franking refund. That's Labor's fair Australia.

Labor is too dumb to understand it, and the LINO's too lazy and spineless to argue it.

It's reverse Robin Hood by government edict, same as the solar panels. There'll be a run on the aged pension, as a lot more people will suddenly  qualify


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## PZ99 (1 February 2019)

I just don't think Labor will have much choice. The senate will almost certainly block the Nanna and Pop parts of it. The Greens and the LNP are against it and I can't see the indies going for it.

If anything the LNP should use the Paul Keating GST tactic of 1993... that is if they lose the election then let Labor do it and wear it. That'll scare a few voters 

The real problem for Labor is they've already committed to spending the money - so it's highly likely their "programs" will go unfunded - just like last time..


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## sptrawler (1 February 2019)

In reality, canning the the franking credit to the low income partner, stopping NG on low cost established housing and hitting capital gains. I really can't see how the lower middle income earning couple, will ever get ahead. The penny will drop, but I think it will drop too late, the flip side is Billy will only be one term.
But who knows, maybe that is all he needs, to top up the pension.


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## tinhat (2 February 2019)

Allowing SMSF to gear into property is just stupid. I'd encourage scrapping that first.


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## Logique (4 February 2019)

Good piece from Peter Smith, my bolds, more at the link. 
In Labor's 'Fair Australia', the PM and Treasurer can get a refund of their overpaid tax - but old dears aged 75 and over - they can't Comrade!


> 3 February 2019 : By: Peter Smith, Quadrant Online:  https://quadrant.org.au/opinion/qed/2019/02/a-guide-to-franking-credits-for-despots-and-dummies/
> We, the people, have to be on our guard when government excuses oppressive and discriminatory action on the basis that only a small minority will be injured. Who will form the next small minority?* Who will be picked off next?*
> ...Labor’s intent is not only ageist, it is sexist to boot. I understand that Tax-Office figures show the group gaining most from *refunded franking credits are women aged 75 and older*. They received an *average amount of $6561* in 2015-16. This must be confiscated, comrades Bill and Chris exclaim in unison. Can’t have those old dears living high on the hog when we have, oh, so many things on which to spend their money....
> ...The fact that *Bowen* is so insufferably smug about it all – *he, of course, is personally unaffected* – does not help the medicine go down. Another politician. Yet another sour and bitter taste....


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## Toyota Lexcen (4 February 2019)

Terrible situation. I hope the press gets right onto this.


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## sptrawler (4 February 2019)

tinhat said:


> Allowing SMSF to gear into property is just stupid. I'd encourage scrapping that first.



If they lose fanking credits, and end up receiving 4-5% return, they will have to look somewhere for reasonable returns.


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## sptrawler (4 February 2019)

Logique said:


> Good piece from Peter Smith, my bolds, more at the link.
> In Labor's 'Fair Australia', the PM and Treasurer can get a refund of their overpaid tax - but old dears aged 75 and over - they can't Comrade!



What galls me, is the smug look on his and Bowens face, when they reinforce the unfairness of it.
Maybe Bill could let the SMSF's, join his gravy train pension.


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