Worried about Labor’s franking credits tax plan
‘We have no super and have worked hard to build our share portfolio’
WE are trying to come to terms with Labor’s plan to tip the franking credits earned from shares on its head. Nothing is being spelt out and we can’t work out how it will affect my wife and me. We have no super and have worked hard to save to build our share portfolio. We earn $150,000 in gross dividends, $4500 in franking credits and about $20,000 in interest from our term deposit, on which we pay tax. What should we do? If we sell shares we’ll be caught up in capital gains tax (CGT).
It should not affect you. The proposal is to deny a refund of excess franking credits to low-income or zero-paying taxpayers. From the information provided, you would certainly be a taxpayer and should be able to continue to enjoy your franking credits. So my advice is to sit tight – there appears no need for you to liquidate shares and incur CGT. I HAVE made a capital gain by selling an investment property. I have calculated the CGT I will have to pay at about $15,000. I have heard it is possible to pay additional money into my super fund which will offset my CGT. Is this correct and how do I go about it? I am working parttime and expect to have a wage income of around $50,000 this financial year.
Capital gains tax is calculated by adding the gain after deduction of the 50 per cent discount, if appropriate, to your taxable income in the year of sale. If you are eligible to contribute to superannuation you could make a concessional contribution of up to $25,000 in a financial year, which could reduce your taxable income and so reduce your capital gains tax. Just bear in mind the 15 per cent entry tax on concessional contributions when you are doing your calculations, and also that the $25,000 cap includes contributions from all sources. If your employer is contributing for you, any superannuation they pay on your behalf needs to be taken into account. RECENTLY you mentioned it was not possible to make non-concessional super contributions once a person’s super reaches $1.6 million. Can you clarify if this applies if one of the super accounts is already pension paying, and the other is in the accumulation phase in a transition to retirement arrangement and under separate fund management? My understanding was that there was no limit to amounts that could be accumulated in the accumulation phase, and that if these exceeded the $1.6 million if transferred to pension paying phase, excess could be withdrawn as a lump sum.
The ban applies to the aggregated total of all your superannuation, irrespective of which mode it is in. But it applies to non-concessional contributions only. Provided you are eligible to contribute, you can still make concessional contributions totalling $25,000 each financial year, including employer contributions. Noel Whittaker is the author of
Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au