Ideally placed to use tax credits
Retail and industry super funds would not technically be exempt from the federal Opposition’s dividend tax credit cashback ban. However, in reality they would be.
The federal Opposition claims that 90 per cent of cashbacks go to self-managed super funds, with only 10 per cent going to retail and industry super funds.
This may be true, but these large funds are ideally placed to use all their tax credits.
Large funds have members who are still working and those who are retired and drawing a super pension. Both categories of members are invested in stocks that pay franked dividends, but only for the members still working and contributing pay tax.
Each fund has a single tax liability and all tax credits are indiscriminately applied to reduce that tax liability.
So tax credits generated by members drawing a taxfree super pension are used for that purpose.
As a result, large super funds refund those tax credits to members drawing a pension. The funds effectively take money out of working members’ accounts to do this. All fair and square.
However, the upshot is that members drawing a taxfree super pension would effectively continue to receive tax credit cashbacks.