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Franking Credits and your retirement - what you need to know

Retirement  |  14/02/2019  |   5 min read

There has been a lot of media coverage about proposed changes to franking credits. Much of the discussion has been confusing and unhelpful. We’ve attempted to clear things up for retirees and members in the pension phase.

A quick refresher

Industry Superfunds have compiled a useful guide to franking credits. You can read more here. In short:

‘The purpose of imputation credits is to stop the double taxation of company profits. An imputation credit (also known as a franking credit) is essentially a note that comes with share dividends that says company tax has already been paid on the dividend, giving the shareholder a discount on their tax at tax time and thus avoiding double taxation.

For those shareholders who don’t earn enough income to pay tax, there is nothing to offset the credit against, so these surplus credits are paid to them in cash. In these circumstances, the company profit is not being taxed at all’.

Will this impact me?

Members who hold an Account Based Pension with Equip are unlikely to be impacted in any way (and you can read more about that below). Things get more complicated when it comes to Self-Managed Super Funds (SMSFs). According to an article by Treasurer Joshua Frydenberg, data from the ATO indicates that around 200,000 SMSFs may be impacted in some way, with an average income drop of $12,000 a year.

What do Equip members need to know?

  • Equip members in the pension phase can access the value of franking credits today
  • Equip does this by including the value of franking credit in the unit prices members receive
  • Equip is able to do this because it pays tax on the income of the fund as a whole
  • Any franking credits attributable to the pension phase can be used to lower the overall tax bill of the fund
  • To the best of our understanding, that will still be the case after 1 July 2019
  • Labor Party proposals are just that – proposals, which have not yet been legislated, and may not even pass the Senate even if Labor wins Government

If you are a member with a SMSF at risk of losing your franking credits, one solution would be to roll your money into Equip, where you will be able to get the full value of the credits. Depending on your current arrangement, you may also benefit from a more diversified portfolio, where we can generate returns from multiple sources.

An Equip financial planner can help you explore your options, and create a personally tailored plan that takes into account potential changes in franking credits. We also offer services to help you wind-up an SMSF.

Learn more about Equip's financial planning services. Click here.

Equipsuper Pty Ltd (“Equip”) (ABN 64 006 964 049, AFSL 246383) is the Trustee of the Equipsuper Superannuation Fund (“the Fund”) (ABN 33 813 823 017, MySuper Authorisation 33813823017672). This document provides general information only. It does not take into account your personal objectives, financial situation or needs, so should not be taken as personal advice. Before making a decision to invest in the Fund, you should read the appropriate Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Equip is licensed to provide intrafund personal and general superannuation advice under its AFSL. Member Advisors are employees of Equip. For more information about the remuneration of Equip and its employees, please refer to the Equipsuper Financial Services Guide (FSG).

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