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Have Your Say 2018

Welcome to the 'Have Your Say' section. We have received thousands of comments on articles over the years, but here is a chance for you to set the agenda.

Cuffelinks often receives emails from readers offering opinions on subjects not directly related to any article, including feedback on the weekly editorial in the newsletter.

While Cuffelinks is not licensed to give person financial advice and often cannot respond directly, 'Have Your Say' is a place where you can share your opinion and engage with each other.

We also receive many approaches from market experts, especially fund managers, wanting to write articles and asking what topics to cover. Raise any subjects you would like addressed.

Comments must meet our community standards of no product flog and no personal attacks. Keep it respectful and constructive.

Comments relating to a specific article should be posted with that article.


Sam Curtis
April 17, 2019

Bill Shorten: "If you are getting a tax credit when you haven’t paid any income tax, this is a gift"

He knows that is a lie, but hopes that enough uneducated voters will fall for it. Gutter politics. This is theft, plain and simple. This time it's high tax payers and pensioners they are targeting. They are unfit to govern.

Malcolm Campbell
February 28, 2019

I have a question. Let's assume the ALP get elected and it's franking credit refund policy gets legislated. Whilst refunds cease, they are not lost, but are accumulated for future use. But there is minimal opportunity for the tax-free SMSF pension recipient to use these accumulated franking credits.

"Death and taxes cannot be avoided" but perhaps in the future the former could minimise the latter. So when I die, my Super has a tax-free and a taxable component, the latter taxed at 15%. Can my accumulated franking credits be used to reduce my tax? Please say YES. The thought of giving our Bill and our Chris, the finger from the grave, makes death sound almost pleasurable!

Carlo Bongarzoni
December 22, 2018

Banks should show cause!

The Banking Royal Commission has illustrated how woefully the banks have failed the public, their fiduciary commitments, and their own shareholders. Pending the Commission’s report all manner of “punishments” are being touted. But surely one remedy would suffice? The perpetrating banks should be made to “SHOW CAUSE” why their banking licence should not be cancelled! And banking licence entitlement should be reviewed 3-yearly.

Obtaining a banking licence takes a lot of doing and it’s not just about proving that the applying entity has sufficient secure funds. Licence approval is or should be also about fiduciary responsibility, legal compliances and public duty since banks’ play such a key role in society’s monetary needs. Their proven comprehensive failure on all such criteria surely questions any continuing entitlement to a banking licence? The act of re-applying for a banking licence and showing cause for such consideration should result in future modus operandi models more likely to guarantee public and customer safeguards, Board and executive management integrity and fiduciary commitment. Imposition of 3-yearly such reviews should also be a cementing guarantee.

A properly conducted licence renewal process backed by 3-yearly repeats could then avoid the suggested insertion of in-house monitoring and ever more additional procedures/controls. It should not however preclude serious overhaul of banking regulatory bodies whose failures have been so self-evident.

SMSF Trustee
December 24, 2018

And they would do so easily. The Royal Commission has highlighted the poor policies in some areas, but 99% of bank clients have experienced nothing but a very competent well delivered service. Their salary has gone into their account, they’ve withdrawn cash or efficiently used their cards to make payments, or they borrowed and bought their home to live in, at interest rates they know with certainty ahead of each payment. That’s what they’re licensed to do and they do it just fine.
Let’s not diminish the findings of the RC, but let’s also not throw babies out with bath water. Keep a perspective on things please.
I do not want to face the uncertainty of knowing if one of the four major financial institutions might get closed down when I’ve experienced nothing but good service from them. That would be an enormous unnecessary inconvenience and an economy killer.

Gary Judd
December 14, 2018

To quote from Graham's introduction: "In the six years I have been writing these introductions, I have been reluctant to make macro forecasts. There are so many factors at play that predictions become an unsatisfactory 'on the other hand' exercise. Sound reasoning can be overtaken by a late-night tweet from an egotistical and unpredictable leader."

The chaos theory applies both to weather and climate, and to financial markets. In both cases, predictions are unsafe except in the very short term. Where chaos theory applies, predictions become exponentially more risky as the time span increases. explains in relation to climate change modelling, but is applicable to aspects of financial markets too.

This extract is a brief explanation.

"Systems of forces, equations, photons, or financial trading, can exist effectively in two states: one that is amenable to mathematics, where the future states of the systems can be easily predicted, and another where seemingly random behaviour occurs.

This second state is what we will call chaos. It can happen occasionally in many systems."

Aspects of financial systems are inherently chaotic. In financial systems, there is the additional factor that the inputs (such as a late night tweet from a leader, a riot breaking out in Paris or a terrorist attack in Strasbourg) can be outside the 'usual' range of activities occurring in markets.

Ray Hendle
December 13, 2018

May I suggest one becomes very careful when given advice by this previous Leader of the LNP. My own financial experience of following his lead met with the same outcome as this Leader politically. Cake anyone?

SMSF Trustee
December 11, 2018

Michael Forrest, a Royal Commission can only recommend that law enforcement authorities prosecute people. It has no powers to put people in prison as you suggest. A Royal Commission is a public enquiry. It can compel people to give evidence and appear before it, but that's about all. It's then up to the government and law enforcement to act if they choose to do so.

Which is only right. There remains a presumption of innocence until proven guilty and the RC's processes only establish that there's possibly a case to be answered, not that guilt is proven. I think observers need to keep that in mind and let proper process play out from here.

Also, the purpose of a Royal Commission is ultimately to change behaviours. Yes, there'll be some prosecutions, but if that's the only outcome and nothing else changes, then I'd be far more worried about the value of the process. So, I'd put the question the other way around from the way you have - even if no one goes to gaol, if behaviour doesn't change 'was it worth it?'

Michael Forrest
December 10, 2018

I am very keen to hear from you about your feeling on the Royal Commission. Do you thing we will see Commissioner Kenneth Hayne finding actually see some of our BANK heroes spend time in jail? If not was it really worth it? What other penalties will be considered. The banks are now one of the lowest trusted groups in Australia - with that being the case is there potential for the economy to stall more than it is currently?

December 09, 2018

Just read the 9 December Weekend Update. Wow. Is this really the insiders' view of the Royal Commission? That to suggest that

" ... taking money to which there was no entitlement raised a question of criminal law?"

was somehow dangerous??

If there is wrongdoing, should they not point it out?

This whole piece has the tone of the arrogant defence of the indefensible. How dare they attack banks for doing a poor job and causing so much damage!

Banks have been reckless. Customers have paid the price, and it increasingly looks like we are all in for it as the impact of years of liar loans now come to bite.

Bank executives have overseen this, and have been paid obscenely for it.

Banking culture has accepted all of this as the norm, with profit the justification.


November 30, 2018

Hi Graham,

Firstly, congratulations on the incredible job that you and your team at doing at Cuffelinks. It was really brought home to me this week when I received a shareholder survey from the CBA, and in the list of influencers to be selected was Cuffelinks. Well done!

And I really enjoy your refreshing weekly introduction – you have really mastered the turn-of phrase and humour, very enjoyable.

Turning now to my inquiry.

Would it be possible to run an expert article on what an SMSF can do in anticipation/implementation of the Labor Dividend Imputation proposal – this is now looking as an increasing certainty as every day in politics marches on.

There have been many articles discussing the bones and impact of the proposed policy, and much wringing of hands, but I have not actually seen a good article which discusses the options that may be available to minimise the negative impact. If there is such an article, please correct me, that would be much very appreciated.

Graham Hand
November 30, 2018

Hi Phil

Thanks for the kind feedback.

We did publish the following article from a financial adviser who specialises in tax advice to HNWs.


Andre S
November 29, 2018

The Royal commission into banking might never be repeated if, - and that's the challenge here, -if remuneration doesn't invite to unethical, immoral and sometimes criminal behaviour.
Detectives often solve crimes by following the money trail.
Investors can adopt a similar strategy by scrutinising how employees in companies they consider investing in are remunerated. End of story!

Chris Stott
November 29, 2018

Hi Graham,

I will be finishing up at WAM in the coming weeks to take a break from markets and recalibrate.

Thank you for having me as a contributor over the years and congratulations on the success of Cuffelinks.


Chris Stott?
Chief Investment Officer / Portfolio Manager
Wilson Asset Management

Dan Molesworth
November 29, 2018

Hi, great graph in your newsletter, it will be interesting to see what it looks like 1 Jan 2019, my guess a lot better after a combined xmas rally and end to US/China negotiations.

Regards, Dan.

Martin Castilla
November 29, 2018

Cuffelinks is always interesting, often thrilling.

ThankYou Graham for your updates and comments. Much appreciated in today's finance world...



November 25, 2018

I am interested in the ALP's proposal to tax trust distributions at 30%. If the trust distribution is entirely made up of franked income, then I presume that the 30% distribution tax will be imposed on the grossed-up value of the dividend. By the time the beneficiary receives the distribution, it would have been taxed twice - once at the corporate level and once at the trustee level on the same amount. And then to rub salt into a burgeoning wound, the beneficiary is denied a refundable franking credit. This is bordering on corruption. Cannot wait for the policy release on this one.

Graham Hand
November 25, 2018

To our readers, apologies for sending the Weekend Edition to all our subscribers. It was an admin oversight. We usually only send it to those who do not open the newsletter on Thursday. This ensures they do not miss it as many people tell us they prefer to read on a weekend and the newsletter may be missed on Thursday with full inboxes during working hours.

December 02, 2018

Very thoughtful, thank you

November 23, 2018

I attended the public hearing of the House Economics Committee in Melbourne today (Refundable Franking Credits) and found it quite informative especially when members of the public were invited to speak. One member of the Committee, Mr Josh Wilson MP kept on quoting the Parliamentary Budget Office (PBO) finding that 1% of population derive an $83,000 benefit in the form of refundable franking credits. Before today, I was under the impression that the PBO findings was based on the environment that existed prior to 1 July 2017 (unlimited assets held in pension accounts). However, Mr Josh Wilson seemed to indicate that the PBO findings had incorporated the likely impact of the legislative changes that introduced the $1.6m cap on pension assets. None of the attendees in the witness chair challenged Mr.Wilson's assertion. I find it difficult to accept this assertion given that the ALP's franking proposal (which is based on the PBO findings) came to light in March 2018, only eight months after introduction of the Transfer Balance Cap. Anyone care to comment.

charles ds
November 22, 2018

Franking credit refunds exemption

I heard on a podcast recently, when talking about exemptions to the ALP franking policy, Alan Kohler stating verbatim: “if you are on any sort of government payment you still qualify for the cash rebate”.
We qualify for the Commonwealth Seniors Health Card which comes with a small quarterly payment (about $68 pp) as part of the Energy Supplement of the Household Assistance Package.
Can you advise whether this payment may provide exemption to the proposed ALP retiree tax.
I have put this question to Chris Bowen office but failed to get a reply .
Charles DS

charles scourfield
December 13, 2018

Further info on my earlier query about Commonwealth Seniors Health Card holders, and whether they would be exempt from the ALP no-cash-refunds on franking credits: I eventually received a reply from Chris Bowen's office as follows:
"In answer to your question, the Commonwealth Seniors Health Card does not qualify your SMSF from exemption under Labor’s Pensioner Guarantee policy."

November 22, 2018

This week’s edition would have to be a contender for one of the best issues!

November 20, 2018

Hi, im an avid reader of cuffelinks, thanks for providing so much info to investors out there

Obviously, ive been reading with much fear the info about how labor’s franking credit policy will affect myself and most other investors, but ive not come across anything on cuffelinks about their other policy re the reduction in capital gains discount

But first, may I check with you, while labor say they will reduce the capital gains discount from 50 to 25 because of “high property prices” im of the understanding that this reduction will be applied to ALL asset classes, not just real estate ...

My immediate question is WHY? If people, like me, who are not invested in property, only in the stock market and other assets like bullion, crypto, and domain names, who ARE NOT part of the “problem” that is driving ever higher house prices, then WHY are labor going to penalize me with having to pay 25% more of my gains in cgt ???

Investors NEED to keep as much of their capital gains as possible, in order to reinvest, and thus grow their dividend incomes over time, so as to eventually not be pension-reliant

Unlike the us, Australia residents cannot defer their capital gains tax if using the proceeds to immediately reinvest in other assets ...

Imo, cuffelinks, this is as big an issue for small investors as the franking credits issue is, it’s a whopping 25% tax rise, and is going to hurt many people

Thanks, john

Graham Hand
November 20, 2018

Hi John

Thanks for the kind comments and the question, it's an important issue.

Labor's policy is here:

It says:

"Capital gains tax

Labor will halve the capital gains discount for all assets purchased after a yet-to-be-determined date after the next election. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

All investments made before this date will not be affected by this change and will be fully grandfathered.

This policy change will also not affect investments made by superannuation funds. The CGT discount will not change for small business assets. This will ensure that no small businesses are worse off under these changes.

Labor will consult with industry, relevant stakeholders and State governments on further design and implementation details ahead of the start date for both these proposals."

So it seems that any investments you already own will not be affected.


November 21, 2018

Thanks graham, but ah yes

It will affect any shares etc I purchase in the future, which is my concern

People who buy shares and who wish to grow their capital so as to earn more dividend income and greater gains down the track, will be heavily penalized by labor

And these are people who are not even in the property market, thus people not causing the “problem” are again going to suffer because labor only know how to use a blunt instrument when it comes to investment taxes

Kind regs, john

December 02, 2018

Hi Graham, I was wondering if Cuffelinks had covered the issue of the government targeting a 2-3% inflation band, and the effect that has on retirees.
On one hand those on the pension are being called welfare recipients, but with the governments inflation target raising the bar constantly on what is needed to live a decent lifestyle, it makes it damn difficult, especially if you are lucky enough to live longer

December 14, 2018

Good to see Graham exploding the myth of the capital gains tax policy of Labor not being grandfathered. Further, I see no reason why people without the means to achieve capital gains, should be subsidising high income earners who lower the government’s tax revenue and then often have the hide to criticise governments when they fail to achieve budget surpluses. Of course, people hate to lose their tax lurks but their opportunity cost to the nation needs to be taken account of.

November 16, 2018

Not surprising Shorten wants to cut refunds for SMSFs to encourage industry funds.

Nicholas Chaplin
November 08, 2018

Hi Graham,

I must say I've lost any skerrick of respect for 'Banking Day' after they admitted two horrific actions - they bought Kevin Rudd's memoir, and they read it! Anyway, now I know that Rudd felt a major bank was 'near-fatal' and yet the government did nothing (either by themselves or via APRA). Not surprised really, as I don't believe the hype here at all, but one has to put some guff in a memoir to get it sold doesn't one? Incidentally, do you know if the memoir was in mandarin? He has such a way with the language.

November 22, 2018

Nicholas. Rudd did do something. On that fateful weekend he announced the bank guarantee so stopping the run on the banks that had already begun. I know I was terribly worried and was contemplating pulling all my money out of my accounts on the Monday but due to Rudd's guarantee I didn't have to do that. IMO, it was the greatest thing Rudd did and I don't believe the LNP would have done the same. They would have sat on their hands as usual and let the country sink into recession like the rest of the world.

November 27, 2018

Excellent point, Jan.

Philip - Perth
November 05, 2018

If you want "public employee" superannuation benefits you'd join the public service. That's about the ONLY advantage the public servants now have, given the lack of tenure and permanence that was once a feature. I agree wholeheartedly however that politicians should have the same fund as the public servants or be allowed to take their 9.25%pa and put it in an SMSF or public-offer fund - like the rest of the population. That would help ensure they don't get a false sense of entitlement. One politician did exactly that: Alan Carpenter as WA State Premier about 15 years ago, but he was lonely in that morally strong position.

SMSF Trustee
November 05, 2018

I think there was a guy called Harradine who did something similar.
People forget, though, that being a politician is a very different role professionally to anything else. What other job can you do really well for 3 years, the role doesn't get made redundant, the employer still goes about its business, but you can get voted out for reasons totally unrelated to who you are or what you've personally done?

I'm all in favour of a more generous scheme for those who make it through a couple of terms living on that edge.

November 18, 2018

Politicians have a lot of power and need to be watched carefully, but I do agree that those that give their heart and soul doing a thankless task should be rewarded

November 05, 2018

In case you were not aware - new Federal pollies since 9 October 2004 are no longer eligible for generous defined benefits, that was stopped many years ago (2004) in the Howard/Latham era. See

New pollies have choice of fund, which now includes an SMSF if they wish. The default fund is AustralianSuper.
They receive an employer contribution of 15.4%, the same level as new public sector employees receive in PSSap. So they are now on the same level of entitlement as public sector employees. The long standing pollies (pre October 2004) still get a defined benefit but that was part of their terms of "employment" so it continues for them. HOWEVER it is worth noting that although they get a generous benefit, they have to personally (post-tax) contribute 11.5% of salary for the first 18 years of service and 5.75% thereafter. I doubt that there is any other fund in the country that requires a personal, post-tax member contribution that high, so it's not all taxpayer funded as many people think. See

November 04, 2018

What to do if Labor gets in:

November 16, 2018

Dream on Peter! Looks like you want to hide your assets from the pension eligibility tests. The term “self funded retiree” is also a complete misnomer as everyone with a super acccount has been tax advantaged by the government (tax payers) during their accumulation phase. It would be very hard to find many people who are “self funded”.

November 26, 2018

Paul: People with SMSFs are "self-funded" to the extent that when the fund is no longer in accumulation mode, the pension they MUST draw from the fund (starting at 4% of the balance p.a. and rising with age) is NOT a government pension. And while concessional contributions are what you call "tax-advantaged", non-concessional contributions are taxed at the member's marginal tax rate prior to entry to the fund. It should also be remembered that government pensions are paid for by all taxpayers from the public purse. They are tax-free so are also "tax-advantaged" but NOT self-funded.

Peter Ewers
November 03, 2018

Graham. Just read your article on travel and remembering, half way through a 1 month oliday in Europe (Spain, Portugal and France) it was absolutely spot on, right down to the photo books and small disasters. Great way of thinking about why we travel.

Michael Savery
November 02, 2018


A comment from a loyal subscriber. My simple argument against the Labor franking proposal follows (may have been made by others but perhaps in more words).

If I invest in Australian shares via an industry or retail super fund, the fund should be able to convey the full benefit of franking credit refunds to me, provided the fund is tax payable overall. Industry funds have already come out and said generally they do not expect to be affected.

The exact same investment profile transplanted into an SMSF will typically lose that refund. This is not fair. The loss will be greater in pension phase than accumulation phase.

My reason for using an SMSF rather than an industry or retail super fund is not tax related. It is to gain control, transparency and lower costs.

November 03, 2018

You have summarised my issue with the ALP proposals in a nutshell.
If an ageing demographic means that 0% is no longer a sustainable tax rate for funds in pension mode, then set an appropriate tax rate, but it must apply to all types of super funds. And prepaid taxes such as franking credits must be taken into account when calculating the final balance due or refundable on tax return finalisation.
That would be a fair system and not distort investment decisions.

Wayne Ryan
November 15, 2018

Reply to SH2071 and Philip from Perth

I agree that a 0% tax rate is no longer sustainable especially with the ageing demographic and that we need to raise more tax rather than less. This could be achieved by a tax on super pensions of, say 15%, preferably subject to a rebate to recognise that the pension paid is partly a return of capital, as applied previously. If the dividends received were fully franked there would be a refund but not as large as is currently the case.

Philip, do these direct access funds include pension accounts as well as accumulation accounts?

Shiraz Nathwani
November 16, 2018

"While franking credits will remain under Labor, it wants to stop cash refunds for excess franking credits for investors, typically self-funded superannuation funds, who pay little or zero tax”

Better, Simpler, Smarter and Fairer Proposal would be for ATO to Retain 1% Percent of ALL Imputed Credits before passing on to Taxpayer.That way Labour will collect more.

IF any changes,To Imputed Credit - Must be shared by ALL taxpayers receiving Imputed Credit.

Chris O'Neill
November 19, 2018

"no longer sustainable with the ageing demographic"

Ironically, the people who are being asked to stump-up to provide for the ageing (and dependent part of the) demographic are the ageing part of the demographic who are not dependent on others.

This seems to be the preferred solution for paying for the dependent aged - single out the independent aged to pay for them.

Philip - Perth
November 05, 2018

Hello Michael Savery. I may have a solution for you...why not hold the shares you currently have in your SMSF in a wrap account/platform where the administrator can offset tax liabilities? Many now offer direct access to shares and having an SMSF is getting more expensive while using these platforms is getting cheaper. I won't mention names, but the best are excellent and low-cost and much more convenient than most share trading accounts as well as far cheaper than using a broker. I spent 20 years putting clients into SMSFs until about 5 years ago and since then I've been getting them out. The Labor policy effectively only targets high value accounts in pension phase and as it will affect only a tiny minority (despite what Mr Wilson would have you believe) it will prove quite popular and a revenue raiser from the very people it should be raising revenue from. This country needs to raise more tax rather than less if we are to have a good society with First World health, education and welfare, not to mention Aged Care - something many reading this will need to consider over the next 20 years. In my view the SMSF's days are numbered anyway, as an aging clientele won't want the complications and costs for very much longer.

Wayne Ryan
November 15, 2018

Hi Philip

Do these direct access funds include pension accounts as well as accumulation accounts?

November 22, 2018

"The Labor policy effectively only targets high value accounts in pension phase and as it will affect only a tiny minority (despite what Mr Wilson would have you believe) it will prove quite popular and a revenue raiser from the very people it should be raising revenue from."

First, go check the stats. Labor's policy will affect a very large number, especially low to mid income people and not just old foggies.

Second, given Howard introduced cash refunds and raised the tax-free threshold from $5400 to $6000 to compensate for the GST impacts on lower incomes, to be FAIR, if Labor wants to raise more revenue by cutting cash refunds, then it should reduce the TFT back to $5400 from the current $18200, which it introduced in 2012/13. This would return everyone to the pre-GST status quo.

(Transcript of the prime minister, the Hon. John Howard MP, Press conference - Parliament house 13 August 1998, p2).

Climate change wonderer
November 01, 2018

There is a very interesting at this web-site commenting on two recent reports on climate change. The really interesting item relates to the second report, which is a paper that conducted an audit of just how good/ sound is the temperature date underlying the conclusions of the Inter-Governmental Panel on Climate Change (IPCC) reports. My understanding is that the data isn't that sound until around the 1950's.

November 15, 2018

So the question is, what should we do with that information? Pull up stumps and decide there is no climate problem after all? It is a bit hard to make a smaller effort than the one we are already making.

Chris O'Neill
November 19, 2018

"isn’t that sound until around the 1950’s"

Maybe. Problem is that the vast majority (0.9 degrees C) of the industrial global warming has occurred since the 1950s.

So concerns about the accuracy of the data before the 1950s are pretty academic (as you'd expect from an academic like Don Aitkin).

Retired self-funded pensioner
November 01, 2018

Regarding Labor's proposed franking credit policy: are the major industry super funds (Australian Super, I am thinking of you) taking any stance on the policy? I would have thought that if they can afford to spend their beneficiaries funds on advertising such as "compare the pair", they should certainly spend money to oppose such a policy that MUST have a direct and material adverse affect on the incomes of at least those beneficiaries drawing a pension.

Graham Hand
November 01, 2018

Hi, AustralianSuper has addressed the impact of this policy on its members here:

Fergus Hardingham
October 29, 2018

Hi Graham,

Thanks for your editorial comments in Edition 277:

Firstly while ASIC call Long/ Short funds HEDGE funds… we don’t… they are simply trying to generate returns from the rise and fall of asset prices and not just the rise of asset prices as LONG ONLY FUNDS aim to (but don’t always) do.

The example below (which we use) – certainly shows a lower exposure to MARKET RISK and a better return profile over both bull and bear markets than simply being invested long (especially in the index).

Again it is also not just the overall return but the RISK (including drawdown) taken to generate the return… larger drawdowns = longer recovery periods… noting that the ASX (price) index is, as you know, yet to recover post 2007 peaks.


October 25, 2018

A suggestion for another poll.

We are often told the science on Climate Change is "in" and everyone accepts it.

I think it would be interesting to obtain the thoughts of people who do think.

So my suggested question is:

"Do you believe Climate Change is due to the actions of mankind?"

Obviously there are many similar types of questions that could be used in the future.

Wayne Ryan
October 25, 2018

Almost all the world's climate scientists consider that the current rate of climate change is primarily a result of human activities. Even if there is a low chance they are correct, say as low as 10%, the anticipated adverse impacts are so great that risk management tells us we should be acting.

Ian Bradford
October 25, 2018

I agree 100% with Wayne - given the potentially extreme consequences of inaction compared to the relatively low costs of moving towards a sustainable future (which by definition we must eventually do!), it's incomprehensible to me that our leaders continue to do nothing! Clearly it's a case of "I won't be around when the **it hits the fan", so why bother? Personally I feel a big responsibility to leave this world in a state that will allow my great grand-children to be able to enjoy it as much as I have, but unfortunately many others seem prepared to risk their childrens future for a few dollars.

Warren Bird
October 26, 2018

Yes. If it’s only tail risk management it’s still vital. I believe it’s more than that, but in any case the cost of getting out of coal is now low enough to justify it as a tail risk strategy.

November 15, 2018

Why is it not compulsory for new homes to have solar and storage fitted as part of Basix? I have 9000 litre water tanks which I don’t really need and they were compulsory.

Tony Reardon
October 25, 2018

There must have been literally tens of thousands of posts, blogs, opinion pieces, etc. about climate predictions and political responses and it is probable that most of us who take an interest have positions which we would firmly defend. The various arguments have been expressed endlessly and I do not propose to re-iterate those that I find persuasive and those that I don't.
However I would make some what might be called “meta points” i.e. points about the whole argument rather than the substance of anthropogenic global warming and a proper political response.

Firstly the ascribing of motives to people who disagree with you. It has been said (to paraphrase) that the right (in political terms) believe that the left are stupid; the left believe that the right are evil. Those on the left largely believe that they are superior moral beings. If we ascribe the “left” view to the climate alarmists and the “right” view to sceptics then we see examples such as in the comments of Ian Bradford here ascribing base motives to skeptics e.g. “I won't be around … so why bother” and “prepared to risk their children's future for a few dollars”.

Secondly, arguing from authority especially when it comes to long term predictions. The tired claim of “97% of climate scientists agree”, etc. Without knowing what was asked, this is an attempt to get anything believed. If what we are really worried about is a prediction that global climate will be highly damaging for the well-being of great grand-children, then that has to be the question, not “has the climate warmed” or “Is some warming due to human activity”. We all know that predicting the future is virtually impossible and we can see examples of laughable attempts from our past. Even the IPCC says is that its models produce projections not predictions and states that “In climate research and modelling, we should recognize that we are dealing with a coupled non-linear chaotic system, and therefore that the long-term prediction of future climate states is not possible.”

Thirdly the “precautionary principle” or risk management. Even if the chances are low, the cost is high therefore take action (or take no action depending on the topic). So we shouldn't have GM food, we shouldn't have had mobile phones, we shouldn't have overhead power lines, we shouldn't have nuclear power plants, etc. These were all argued against strongly – and some still are. We have to take decisions and the precautionary principle replaces the balancing of risks and benefits with what best be described as pure pessimism. It is rational to allow this thinking to influence decisions but it is not a sole basis for making decisions. When a sensible discussion of cost benefit trade-offs is produced by such people as Bjorn Lomborg from the Copenhagen Consensus Centre, we can see the real damage to existing populations of taking actions to possibly prevent possible future issues.
As is no doubt obvious, I am very skeptical of the whole climate alarmism but I am particularly annoyed by the sheer inanity of one single number such as 1.5 or 2 degrees Celsius as some meaningful measure of anything real when it comes to the Earth's atmosphere. Clearly averaging night time temperatures in the middle of winter in Antarctica with noon time temperatures in the middle of summer in the Sahara and all places in between including oceans and mountains, does not produce anything meaningful. The process of establishing some number to publicise is convoluted and questionable relying as it does on historic baselines which are adjusted and homogenized within an inch of their life.

October 29, 2018

I'd like to include this chart as a comment about climate change? Note the time scale and source. Source: Bureau of Meteorology

Tony reardon
November 08, 2018

This graph illustrates some of the issues on this topic. The graph purports to show some change in the annual worldwide average temperature but the question has to be asked as to what data is being graphed? It clearly is not some specific actual set of numbers collected but is the result of much adding up and averaging but of what?

If you were asked what is the average temperature in some specific place in Australia today perhaps you might take a measurement every few minutes and calculate an average over the 24 hours. But this isn't what is recorded, the instruments only record the daily minimum and maximum. So we can't do that, we can only take the pair of values and calculate a mean.
Can we sensibly ask “what is the average of minimum/maximum temperatures across Australia on any given day?” Could we take the readings from the approximately 800 stations, add them up and divide by 800? Well, no because we should give equal weight to the temperature at each and every one of the 7.7 million square kilometres in Australia but the 800 stations are clustered in inhabited areas and are sited to be useful e.g. at airports. So a process of calculation, weighting and smoothing has to be done whereby values for all of the points in between stations are sort of smeared across the intervening square kilometres.
Move this set of issues up to a world scale and include oceans and consider the amount of interpolating, smearing and averaging that has to take place (and the lack of actual data across huge areas).
The graph is of “temperature anomalies” rather that actual temperatures where some number is taken as a base (the average of years 1961-1990) which is then subtracted from the value of a given year to give the figure that is graphed. This process might be done for individual stations before the geographical smearing, after that process or at any other stage in the roll-up process of days and months.
Note that the original single station minimum/maximum data is recorded at no better than an accuracy level of .1 degrees. Note also that no-one was thinking about any of this in the recording processes or levels of accuracy for most of the last 150 or so years and the old data cannot be recollected or reproduced. Not many readings of Antarctic temperatures back in 1860 or even many stations in Australia! There are lots of issues as to data quality, “corrections” to old data, removals of “anomalies”, plus changes in the physical environment, changes in equipment, etc. so accuracy levels are not fantastic.
The resulting graph shows the results of all this calculation across a range of -.4 to +.8 degrees with no degree of error indicated.
What people imagine by a temperature increase is probably something that a human could sense unaided, increases in maximums, very hot days, etc. whereas we actually seem to have are small increases in the Arctic and in night time temperatures. With a global average temperature down around 14.5 C, this increase, together with an increase in CO2, would seem to be a good thing (certainly better than a colder world). But perhaps, as per Candide, back in 1980 we lived in the best of all possible worlds.

October 28, 2018

Why hasn't there been more noise against Labors, to be introduced Franking credit tax? It is very quiet in retrospect. Does everyone think the Liberals will win?

November 15, 2018

I have a follow-up question for Leigh just to get back onto the topic of investing. Is your view of climate change likely to be now clouding your investment decisions? Would you invest in wind farms, lithium battery producers or smart grid technology companies? There is going to be enormous economic opportunity for the private sector in delivering technologies to decarbonise the economy. I sure don't want to miss them.

October 19, 2018

SMSF Funds in pension mode are required to drawdown from the Fund each year an increasing minimum amount on a percentage basis. I suggest that the original rationale for that imposition is increasingly less relevant or fair in today’s world. The drawdown regulation was clearly to avoid members accumulating increasingly large asset bases through a tax exempt funding superannuation system and consequently understandable. However in light of developments since it is surely time to reconsider and adjust the drawdown levels and assessment methods. The relevant factors are detailed below and cumulatively adversely affect the longer-term confidence of many SMSF retirees in their Plan’s ability to deliver the sort of security for their older age needs that they had planned for.

1 The numerous Government changes imposed on SMSF superannuation in particular have reduced the levels of attraction for SMSF-type retirement saving - in a stable income accumulation and pension sense. The latest being the relatively recent $1.6 total asset cap. In an increasingly less stable world achieving responsible income and asset growth return is a much riskier and uncertain process – especially when the asset total is now capped at a lower level for many whose hard work and saving for retirement had planned on a more liberal asset base regime. Although a one-off government pause was applied belatedly during the GFC there are no guarantees of similar “legislation” for future significant downturns – even though each such adverse investment period significantly reduces the asset base on which retirees rely for earning their anticipated incomes. And importantly the older they are the less likelihood they have of ever “repairing” that unplanned asset loss.

2 Retirees’ likely life spans are increasingly longer for many. Investment return volatility and downturn risks pose very real concerns for many self-funded retirees about whether they will be able to rely on income levels for which they had planned until death. Actuarial calculations on which SMSF legislation rules are predicated on statistics that are some 3 to 5 years in arrears of current experience and in any case questionable when for instance similar UK statistics are compared to Australian. Despite Australia being considered a healthier country than the UK as proved by underlying statistical evidence the UK actuarial tables favour greater longevity and that in turn affects government legislation in respect of superannuation entitlements. That important actuarial discrepancy adversely determines the government’s annual compulsory drawdown percentages against Australian retirees.

3 The announced Labor pronouncements relating to franking and related tax effects would further adversely impact SMSF retirees’ earning and asset base and consequently add further stress on their ability to earn income sufficient for their living span.

Conclusions:- Australia’s superannuation regime since inception has become increasingly less certain as the medium to save for retirement with confidence. Government has contributed to that uncertainty through rule/tax changes which disadvantage most self-funded retirees. The effect of #1 through #3 above only worsen self-funded retirees’ fears that what they had saved for will be inadequate for their lifespan due to increasing longevity, government superannuation changes, less stable investment environments, and outdated annual mandatory drawdown regulations that unfairly disadvantage those who chose to be self-reliant and independent of government benefits through hard work and saving. Much about Australia’s superannuation regime remains questionable and in need of drastic review –particularly from a self-funded retiree standpoint. But a critical urgent starting point should be a review of the underlying rules/rationale for the current annually increasing mandatory drawdown levels to reduce the risk to many SMSF retirees of their savings “bankruptcy” before they die.

Lastly – in the overall Australian superannuation regime context, it is surely reprehensible that politicians and government employees generally continue to enjoy far superior retirement plans and benefits which also often guarantee benefit levels. The historical contexts for such benefits have long since ceased to apply. Most Australians I’m sure would welcome public employee superannuation benefits that more equitably relate to those applying to Australians in general.

Colin Peake
October 18, 2018

Hi Chris,

Congratulations on the Hearts and Minds (HM1) IPO.
I love the idea of these philanthropic funds, listed & unlisted.
I think they are a simple & a great strategy for fund raising for very noble causes.
Can we have a summary of the ones available to Australian investors, with investment returns & their donation records plus any recommendations.



Ian Bradford
October 21, 2018

Hi Colin,

I too would like to thank Chris and everyone involved in the Hearts & Minds IPO, as I agree that funds like this are a real win-win for everyone. Of course they are fantastic for the support they give to very worthwhile charities, but since they also give cost effective access to highly regarded investment managers, they should also generate better than average returns too!

I'm no expert, but as an SMSF investor focussed largely on LICs, I believe that the Future Generation companies (FGX & FGG) are the only other ASX listed companies with a similar mandate. They are run by the highly regarded Wilson Asset Management and invest in a wide range of top managed funds where the managers have agreed to forego the (often significant) management fees in order for the companies to donate 1% of Net Assets each year to a range of charities.

As an investor in both FGX and FGG, I have been more than impressed with their performance since listing a few years ago. FGX which is Australia focussed has even out-performed the All Ordinaries Accumulation Index whilst maintaining a much lower volatility. Whilst the Globally focussed FGG has had a slightly better return, but is a little more volatile mostly due to it's unhedged overseas currency exposure.

I certainly urge everyone to take a close look at these, particularly if you miss out on the allocation you may want in the HM1 IPO, as I think it's quite possible that it could reach the maximum subscription early!

October 15, 2018

I am an avid reader of your Cuffelinks newsletters and website. Congratulations on a informative and necessary effort. I have been following the numerous articles and discussions re ALP's proposed policy in removing franking credits, especially targeted at SMSFs. But, I get the impression it will be targeted to more than what the general public thinks, Labour keeps mentioning SMSFs whom are wealthy and receiving refunds from the ATO, etc. Total misconception to whom they will end up targeting, which when one thinks about it, it will encompass other superannuation funds, managed Funds, ETF’S, LIC, etc. to a certain degree.

No wonder B.Shorten keeps announcing these hand outs, giveaways, to so called hard working families, at the same time insinuating that self-funded retirees are ripping off the ATO. (But anyone receiving welfare will be exempt!) if this is not class warfare, what is?

Is there anyway you can do an article in your newsletter, especially detailing the up and coming Parliamentary Inquiry into Franking Credits, and advise people that it is open to EVERYONE whom will be affected. This Inquiry has been called by Josh Fryenburg, and the Terms of Reference are on the website.

I have already sent my submission off to them, as a Trustee of my SMSF. I think it is imperative that as many individuals complete a submission, if I can do it everybody can! ALSO, any Companies that support Cuffelinks, are entitled to send a submission as to the effects it will have on them, quite a bit I imagine, also to the ASX, associated professionals, etc.

I will also contact other organisations associated with the Alliance of Fair Retirement suggesting submitting their own submissions.

Response from APH on receipt of my submission: "Details of any public hearings the Committee holds will be available on the inquiry web page in due course. The final report will be available on the inquiry web page once it has been presented in Parliament, and you will be notified when this is available. You can also track the progress of the inquiry through a My Parliament account on the Australian Parliament’s website, at:"
Closes - 2 November 2018
Standing Committee on Economics (House) Inquiry into the implications of removing refundable franking credits

October 08, 2018

@ Dave, I have not seen much written on this proposal, but you are right that in your case a shifting of the goal posts is going to hurt you quite badly. My only thought is to consider adding a company to nominated beneficiaries of the trust. A distribution to the company will be taxed at 30% anyway, but you can make franked dividends to you and your wife, which, subject to the hoped for failure of Labor's proposed tax changes on franking credits will give you back the refund of excess franking credits.

October 04, 2018

Thank you for your interesting information on Aust Infrastructure Project. IT ONLY GOES TO PROVE WEST AUSTRALIA IS BEING RIPPED OFF BY THE EASTERN STATES AS USUAL. DISGUSTING. Had to fight like hell on the GST against EASTERN STATES.

Wayne Ryan
September 30, 2018

Warren, I am not advocating the abolition of imputation credits. I am pointing out the inequities.of the interaction between those credits and the abolition of taxes on pensions. If pensions were still subject to appropriate levels of tax I would have no problem with refunds being paid.

As I recall it, the taxes previously paid on low to medium sized pensions were relatively low especially after rebates for capital contributions. The big gains ftom the abolition of the tax have gone to the larger funds.

John, yes you are correct that the logic of grandfathering negative gearing suggests the same should apply to imputation refunds although I don't remememer any calls for grandfathering when taxes on pension were removed


Chris O'Neill
October 02, 2018

Abolishing tax imputation for pension-only super funds is a shotgun approach to clawing back some of their tax-free status: you'll hit some of what you want to hit and miss some but you'll also hit a lot else as well.

There is no horizontal equity in expecting funds holding company shares to pay more tax (which they are imputed to pay) than funds holding other types of investments. Throwing away the principle of horizontal tax equity would be a terrible choice.

The investment tax system in general and pension investment system in particular really would look like it had been hit by a shot gun.

If pension funds should be taxed then the principle of horizontal equity MUST apply.

September 28, 2018

Thanks Graham and Cuffelinks for the opportunity of a platform to express views on Financial Services and investing.

I wanted to touch on some real life issues surrounding insurance which have been real considerations for Australians for some time, but have been brought to the fore by the Royal Commission.

We have been ideal clients for our insurance advisers over the last 4 years. We reviewed our insurances comprehensively in 2014 and took out new policies. Then in 2016 we changed advisers for a few reasons, and reviewed policies and shifted insurers to save on premiums, at the same time adding some new policies.

We are just receiving our annual summaries including the premiums for the year ahead, and they are eye-watering to say the least. As our adviser said (this year), a 24% increase is "a bit steep".

In 2016 when we commenced our current suite of insurances - including Life and TPD for 2 adults, and Trauma and Income Protection for 1 adult, and Trauma for 2 children - the (stepped) premiums were equivalent to 5.7% of our total post-tax income (that is inclusive of SGC less contributions tax as some policies are held within our SMSF).

In 2018 the premiums, even after rejecting the indexing on the Life and TPD policies, are around 50% more than in 2016 and, even with reasonable income growth, the premiums are equivalent to around 7.8% of post-tax income. (If we add our Health, Home and Contents, and Car insurances then we would be paying around 12% of our post-tax income on all of our insurances).

When we bought our first home just seven years ago I realised that insurance was a classic example of how the housing bubble had flow-on affects through the whole financial services industry. I realised that taking on debt is one of the major triggers to taking out or increasing insurances. The sheer level of debt within society, the size of the mortgages that Australians are taking out, and the consequences being that many Australians are carrying high levels of debt through to older ages and delaying certain life events (like starting a family) has been a massive boon to the insurance industry.

This is especially significant as stepped premiums, which can minimise premiums in early years, rise more steeply at older ages, and there are parallels here with teaser rate mortgages or interest-only borrowing to make repayments affordable at the beginning but become much less affordable after a brief period.

Consequently, in the current situation where interest rates are rising for the more vulnerable lenders in the face of flat income growth and rising cost of living, it is likely that many will seriously consider reducing or cancelling insurances altogether leaving them especially exposed.

And here is the added problem from the dysfunction and below community standards within the insurance industry - many will rationalise that under-insuring or dropping insurances all together is not an entirely imprudent decision since the Royal Commission has brought to light so many cases of when people paid these high premiums but were treated poorly by insurers including having their claims rejected outright.

So my family is now undergoing yet another review of our insurances - our third in 4 years. When we took out our insurances in 2016 commissions of $10,500 were paid to our adviser (or to their firm). Now, while I appreciate the efforts of the adviser, I think a comparison to most other professionals from which we obtain services - GPs, specialists, even accountants - I truly think this is an obscene level of remuneration for the service provided. That year we were invited to the adviser firm's Christmas party - we must have been good customers!

Last year the trail commission was around $1,400 - we just received a diary for Christmas! (And through the year the adviser sent a couple of emails - well under an hour of work.)

Now we have a new insurance proposal to consider. The premiums are significantly cheaper, but that is at least in part for a specific reason - it is an insurer that has been sold by one of the banks after having its brand massively damaged through revelations known before but highlighted through the Royal Commission.

So we have a conundrum - act almost contrarian in the assumption that all efforts will be brought to bear on the insurance brand to clean up its act, for longevity of the brand and as a flow-on on from recommendations and increased regulations coming from the Royal Commission, thereby brave customers benefitting from discounted premiums over the short term; OR reject the offer altogether on the assumption that it's rotten to the core and is beyond redemption.

Then again, can we truly be confident that any insurer is any better than another?

But here's the rub. As our adviser has informed us, our current insurer has also been sold by it's parent bank and it's new owner has a history of squeezing people out of "legacy" products by increasing premiums...

If we change insurers we are beyond any clawback provisions so our adviser's firm will keep all commissions paid from the current insurer over the previous 2 years. And if we accept the new proposal - shifting insurers for policies accounting for around 60% of our insurance premiums (1 Life and TPD will stay with a different insurer) - the adviser's firm stands to receive almost $4,000 in upfront commissions. To "earn" this the adviser will need to answer our questions by email, meet with us to complete an underwriting questionnaire, and liaise with the insurer through the underwriting process.

Perhaps we will get an invite to the firm's Christmas party this year? Or not...

When we are asked for specific comparisons on what commission will be received through either scenario (status quo versus accepting the proposal with the new insurer) - to make a judgement whether the adviser firm is able to rebate more of those commissions to make the policies more affordable over the next few years - the adviser seemed "unimpressed" and stated that they have already applied significant rebates (under current rules they could apply an 88% commission and 22% trail).

The adviser also laid out the scheduled reductions in commissions which can be charged over the years ahead, and stated that this "unfortunately... will not translate into cheaper premiums for the Policy holder... it's only the advisers taking the hit".

Clearly spoken by someone who does not get that things needed to change!

Of the premiums that we paid in the last 2 years the Insurer kept less than 50% - in other words, the adviser's firm received over 50%. Now we may be shifting insurers. If this is happening with many policies, then it's clear where much of the funds from insurance policies go....

And we feel like we have little choice other than to continue to ride the hurdy gurdy, trying our best to minimise costs while maintaining prudent levels of insurance, all the while hoping that should the worst happen and we need to claim that the insurer that we happen to be with at the time will be decent...

It aint fun and it sure does not feel secure!

(Apologies for the length of this - I was not made for the Twitter universe - then again somethings need more than 100 characters to cover)

Frederick Randall
September 28, 2018

When I started my SMSF in 2003 my financial adviser kept saying "you can't do this (or that) because it doesn't meet the sole purpose test". What is/was the sole purpose test and why don't we hear it mentioned now,?? Is it legislated.?

SMSF Trustee
September 28, 2018

You'll get a much faster response if you google stuff like this rather than waiting for someone here to respond. But, here you go:

It's a serious issue, as the ATO explains here:

A trivial example, but it makes the point, might be that the SMSF fails the sole purpose test if it buys a bottle of 1968 Grange as an 'investment', but then you open it and drink it. The sole purpose of the trust is meant to be to generate retirement income, not to acquire consumer items by stealth.

A more serious example of that would be if you bought a house in the SMSF and then lived in it.

Wayne Ryan
September 28, 2018

Jan H, you quote Warren Bird but your quotation should have been attributed to me

I agree that there can be unfair consequences from the Labor proposals for people who don't qualify for the old age pension but who have relatively low private pensions. Perhaps the answer to that is to allow a tax credit up to, say $5,000.

Chris O'Neil, you are correct of course that Costello didn't become Treasurer until 1996. I was quoting another contributor re date, obviously without thinking too much. But the relevant point is that it was Costello who made pensions tax free, a policy I still think was a mistake.

Warren Bird
September 28, 2018

Wayne, I believe that Jan H was asking my opinion of what you'd said. But didn't attribute and, though I had a vague memory of reading something like it, I had no context either.

The gist of my response to Jan H in relation to that quote is that, before dividend imputation, Australian companies received very little capital from Australian investors. Imputation was an important part of expanding the saving/investment opportunities for Australians. It was one of many significant microeconomic and tax policy reforms of the 1980's and 1990's that have given our economy a lot more resilience than it used to have.

It was, therefore, a valuable and positive step for the country - as intended by those who proposed in the Campbell Inquiry and others at the time.

So in an economic sense, while the sun still comes up, it now comes up on an economy that has greater strengths than it did when we went through what Paul Keating once described as 'bucking bronco' behaviour. It's not just luck that has seen the prolonged period of economic growth we've enjoyed since 'the recession we had to have'- it's the result of very sound policy changes.

All that's happening now with the consequences of the proposal to change the franking credit regime is that a whole lot of complexities are being suggested, from exemptions for charities and others through to the tax credit you've just put into the mix. Why? Why make a change that needs dozens of counter changes to address the inequities and inefficiencies it introduces?

Seems crazy from a public policy point of view to me. Not like the sound policy changes we used to see.

Chris O'Neill
October 02, 2018

Yes it was Costello who made allocated pensions free of further tax (from 2007) which was a mistake because it completely turfed out the principle of vertical equity (that higher incomes should pay progressively higher tax rates).

Once politicians start turfing out principles, anything goes as we're seeing now with imputed taxation.

Jon Kalkman
October 05, 2018

There are many people who believe that Costello's decision to make all super tax-free after age 60 was a mistake. It was certainly politically popular but in reality very little revenue was forfeited.
I wrote an article published in Cuffelinks in June this year explaining why. Rather than going through it all again, here is the link:

John Sullivan
September 27, 2018

I notice that Labor has decided to Grandfather owners of investments in negative gearing because these people invested under tax laws in place at the time they made their investment. Last weekend the Herald-Sun newspaper quoted the cost of negative gearing as 8 million dollars per year.
Labor has quoted the cost of Imputed credits as 6 million dollars per year yet no Grandfathering for these investors who invested under the same tax laws in place at the time.
Regards John

October 18, 2018

I think you mean BILLION.

Jan H
September 27, 2018

To Warren Bird: "There was a time before imputation credits and subsequently a time before refunds to non tax paying pensioners and the sun still rose every morning. The current system can be seen as a concession and the question is whether we can afford it."

When Howard announced cash refunds as compensation for the GST impacts, he also raised the tax-free threshold from $5400 to $6000 (also to compensate wage-earners for the GST impacts). But, then Labor raised the TFT to $18200 in 2012/13. So, in keeping with your argument that there was "a time before refunds to non tax paying pensioners and the sun still rose every morning", would you agree that the TFT should be reduced back to $5400 at the same time as cutting cash refunds. That way, the status quo prior to the GST would be the same for SMSF retirees and wage-earners. In my view, to cut cash refunds, especially for low income SMSF retirees while leaving the extremely generous $18200 TFT for tax-paying income earners is extremely unfair and unreasonable. And, in your words is a concession that we may not be able to afford.
And, if you don't agree, I for one would be most interested to hear your rationale.

September 28, 2018


Remind me what the TFT is for SMSFs?

Jan H
October 01, 2018

Maurie: As I understand it only resident individuals are eligible to claim the TFT. Super funds are taxed a straight 15% on earnings and !0% on capital gains (if the discount is applicable-asset held more than 12 months)* within the fund. Concessional Contributions are taxed at 15% on the way in. Post-tax contributions (where a tax deduction on other income is not claimed are not taxed on the way in. However, there are caps on contributions and excess amounts are taxed at the top marginal tax rate. See ATO website for more info.

*CGT on super: During accumulation phase, if the SMSF asset sold has been held for more than 12 months by the fund, then the fund can take advantage of the CGT discount. The CGT discount is 33%, which means the SMSF only pays 15% earnings tax on two-thirds of the capital gain. In effect, a capital gains tax rate of 10%.

September 27, 2018

I would like to get the views of the commentators and experts on share trading technology being so far ahead of the regulators, in terms of understanding, transparency and potential impacts. Do you agree or disagree?

Attending some technical session on a range of both corporate and individual trading systems in the USA, highlighted to me that the next "market correction" could be amplified into a "crash", given that all the algorithmic trading systems, are by co-incidence designed to react mostly in the same way if the correction exceeds a range limit; I have estimated this as a decline over three days of 3% on the key indexes. Of course the trigger event for the start-off could be anything.

Is there a responsibility for the regulators to articulate and differentiate their regulation against synthetic entities ie algorithmic trading systems? There have been proposals in the USA and recent rules in the EU, but what is being done in Australia?

Wayne Ryan
September 22, 2018

Jan H quoted John Howard on introducing the imputation credit refund "that cash refunds were designed to help offset the harshess of the increase in cost of living that GST would have on people who are on a “low and fixed income and modest income people including pensioners”.

I reckon that there is case to address this through allowing a maximum refund of, say $5000.

But the fact is that the change has mainly benefitted the better off especially since the rapid expansion of SFMSFs.

The change was made at the height of the mining boom and the question is whether a policy, which to the best of my knowledge doesn't apply anywhere else in the world, is still affordable.

Jon you point out that pensions became tax free in 1992. Another doubtful decision by Peter Costello and one that I thought was unsustainable and still do.

As an indovidual it has been great to get that benefit but that doesn't mean it is affordable or contributes to social cohesion.


Frederick Randall
September 21, 2018

Hi Graham,
I wonder if one of your experts could explain the process that goes on at the ASX immediately after close of business for the day. Sometimes I get more for shares sold than the closing price for the day and vice versa and I would like to know how is this so.!

Chris O'Neill
September 22, 2018

Refundability of imputed tax was introduced during the dot com boom. The height of the mining boom occurred some years later.

"pensions became tax free in 1992. Another doubtful decision by Peter Costello"

Peter Costello didn't become a government minister (Treasurer) until 1996.

Philip - Perth
September 20, 2018

An interesting range of comments and questions covering a range of personal perspectives and characters. Thanks for the time and effort of all who contribute either as primary contributors or as secondary (like this). The more we share views and information the better we all become for it - even if at times it may be hard to hear some things we don't agree with at the time...

John P
September 20, 2018

Have a question which is a bit out of left field. Thanks and comments are welcomed.

Our daughter who is now 27 relocated a couple years ago to UK (England). Subsequently married there and a resident of UK
She does have substantial amount of super here in Australia which we earlier ensured she combined into a single Industry Fund growth option.

Her superannuation here in Australia needs to be either :
- Transferred to equivalent in the UK
- Cashed out and transferred to her personal account there

As we are now in our 70s; she could end up with the farcical situation of her super languishing here in the Australian super fund forever. Never to be of benefit to her.
The ATO, after several conversations and emails backwards and forwards, has been of no assistance whatsoever.

Philip Carman
September 20, 2018

Without offering personal advice, I'm afraid that at present your daughter (like mine, in Austria) can't do anything to get out of her super here if she is an Australian citizen, until she reaches preservation age or meets the hardship provisions (unlikely and very difficult to determine from here about someone living elsewhere). It's a legacy of the tax concessions applied to super contributions that the ATO (and parliament) does not see fit to release the funds - even if she offered to pay back all the tax concessions... What could be an interesting point to raise is in fact her eligibility to be a member of an Australian super fund if she is not an Australian resident. Good luck with that - but it might be the only angle that allows you to open a crack through which, eventually some light may shine!
The logic behind that situation is that she may return to live in Australia one day and then she would resume her status as a superannuation/concession recipient under the (then) rules and laws. It has some merit but is too blunt and takes no account of genuine expats who should (you'd think) be able to transfer to another retirement savings account in their new country. Trouble with that is each has different laws and regulations and some would seek to find loopholes in any reasonable allowance for circumstances - so at present there is almost zero tolerance for people like your (and my) daughter.

September 21, 2018

Thanks for that response Phillip, much appreciated.
Yes its pretty well a Catch22 situation. Very Kafkaesque.

That was an interesting point you made re
" interesting point to raise is in fact her eligibility to be a member of an Australian super fund if she is not an Australian resident"
Do you have any more comments relating to that ??
I would not have a clue as to how to approach that possibility.

If it is similar with your daughter then I assume that you also are going to leave the situation as it is and just hope for the best that one day she may return and claim what is owing to her ??

Although it is not our daughters' circumstances; I would imagine there would be some Australians in the ludicrous situation of living overseas perhaps even destitute and homeless with millions in super back here !!

Steve Martin
September 20, 2018

I note that yesterday the government announced a review of the Labor policy on franking credits. This has been a major topic of interest from readers. The link for lodging submissions is here:
I wonder if Cufflinks can link any publicly disclosed submissions? I am not sure if we can add weight to the concerns from here, but there may be an opportunity we can catch on to. If Cufflinks chooses contribute a submissions, we may be able to add our names in support if we agree with the comments made.

Graham Hand
September 20, 2018

Hi Steve, thanks for the idea, which I read as a suggestion that we link to any public documents. Not sure if submissions will be made public, but if they are, there will probably be too many submissions to link to them individually. Readers should watch the link you provided. Cheers, G

September 20, 2018

With the Liberals having shot themselves in the foot, it seems more and more likely that Labor will get in at the next Federal election which will be in the first half of next year. Of course, Labor is anathema to the sharemarket with their already announced cancellation of cash refunds of franking credits. Now that RIO and in all probability also BHP will announce share buybacks which will include massive franking credits, how likely is it that, if Labor's gets in next year, its franking credit changes will be retrospective on all franking credits received since 1st July 2018, including those on the RIO and BHP buybacks?

Philip Carman
September 20, 2018

Almost an impossibility, I would think, as the only PM who ever put retrospective legislation forward was John Howard (Bottom of the Harbour) and it is now no longer tolerated. Labor gets that. Their proposed policy is about cash refunds to those who otherwise have not crossed the taxable threshold. It's not unreasonable, but I have suggested to them that they should have a $1000 threshold per taxpayer/tax file number, so as to ameliorate much of the concern that it's unfair to lower income earners. That would allow those holding about $15,000 to $25,000 of shares paying franked dividends at 50-100% franking to qualify for the refund. The rest of us should probably consider ourselves fortunate to have more and earn more...

Chris O'Neill
September 22, 2018

"Their proposed policy is about cash refunds to those who otherwise have not crossed the taxable threshold."

It's about cash refunds of any imputation credits, i.e. where imputed tax exceeds assessed tax on taxable income.

James Williamson
September 19, 2018

Hi Graham, you mentioned that Cuffelinks would be working with in some way a retirement website a while ago (I think your articles will be on there or something). What website was that?

September 19, 2018

Soon after Labor announced its proposals on changes to franking credits, Cuffelinks said there would be an article on whether industry funds would continue to access franking credits and distribute them. Did such an article appear, and if so when? If not could one be organised?

Graham Hand
September 19, 2018

Hi Sean, it was published here:

Chris H
September 16, 2018

I often read about the advantages of having a SMSF. Which I do happen to have. However, I can find very little about when or if, someone should close a SMSF.

The Royal Commission has illustrated the advantages of having superannuation in an industry fund and I'm finding it hard to rationalise having my own fund. Performance would be better and costs lower.

Could you comment?

Graham Hand
September 16, 2018

Hi Chris, for most investors with modest super balances and lack of interest in investing, a balanced fund from an industry fund, retail fund (where contrary to popular opinion, a multisector retail fund can cost as little as 0.45% for everything) or some online providers, is a good option. Diversity of asset classes, professional management and reasonable cost. Give them your super and go and lie on a beach in Sicily half the year.

The major reasons to have an SMSF are not about cost but 1) you enjoy investing and want a vehicle in which to do it yourself and 2) you want to hold assets which institutional vehicles cannot hold. For example, if you invest in a balance fund, the fixed interest exposure is mainly to high quality investment grade bonds, which is fine for most people but the yield is say 3% or less. If you want to give your performance some spice by including unlisted bonds, you will need an SMSF. Similarly with holding unlisted property and many alternative funds are not on platforms.

My SMSF includes many assets which no balanced fund holds and it suits my circumstances. But it's not for everyone.

Barry Fitzhenry
September 30, 2018

I gave a pre 95 smsf..if you are worried about costs and compliance..look at Esuperfund..all done for you about $1,000. Problem is , you still have to pick the shares. (I think this firm still handles property in smsf as well..despite the hoo-ha)

The whole finance industry & government wants you to put money in the public funds...employs miles of people and of course less load on pension system. I have 3 public fund memberships, for insurance and also I couldn't match the returns and was tired of the strain picking shares...yes, they can get better returns, but the strain of dealing with their call centers, "archaic backrooms" (royal commission) is more trying. Their own staff can't follow their accounting. And to refer you to the Superannuation Tribunal is CURRENTLY a can expect a 3month delay from the Trustees to reply and the poor Tribunal is 19 months behind opening a new case.

Philip Carman
October 04, 2018

Fair comment and true enough, in the main, BUT - we'd suggest people be wary of using a "balanced" fund that may hold about 30 to 40% in bonds (when interest rates are climbing off historic lows), a similar amount in property/infrastructure and related assets and similar amount in shares that are heavily weighted to financials. The industry funds that allow some choice, i.e. splitting across (say) a balanced fund or even a growth fund (which you expect to be more volatrile) and a cash account (we recommend 40-60% in cash right now) would be more appropriate for someone retired on "enough", as it would be far less likely to deliver significant losses when the almost inevitable across-the-board downturn comes.

Philip Carman
September 20, 2018

When you're retired, the costs of having an SMSF exceed about $5000pa and the account balance is less than $1million and there's no property held in the fund, my sense is that there's no merit in continuing with that SMSF, because the difficulties increase over time, the costs are rising and the ability of members/trustees to stay on top of it all (esp if they want to travel) become less as they age. As a 64 y.o. adviser I've put clients into SMSFs for over 25 years but am now moving them out to the better cheaper public offer funds, which are now lower cost than ever, allow you to hold and manage a share portfolio and access about 250 or more managed funds AND DIY without having to have an adviser - they are optional but not required by about 3-4 of the best funds you can find them by googling "superannuation platforms" and looking at those that allow direct access if that suits you better than having an adviser - which is why some went the SMSF route in the first place. Good luck!

Jan H
September 16, 2018

Former Prime Minister the Hon John Howard OM AC originally introduced the GST and franking credits cash refunds into effect on 1 July 2000. In one of Howard’s speeches (13 August 1998 TRANSCRIPT OF THE PRIME MINISTER, THE HON JOHN HOW ARD MP PRESS CONFERENCE- PARLIAMENT HOUSE) launching his Government’s bold tax package, he said that cash refunds were designed to help offset the harshness of the increase in cost of living that GST would have on people who are on a “low and fixed income and modest income people including pensioners” (pp 2-3):

"We have, of course, included in the plan a number of things that have not been widely speculated about or even thought of outside a very narrow range of people. I am delighted to be able to announce that as part of the plan provisional tax will be abolished. And that will be of enormous encouragement to many people in business, many self-employed people, and it will be a very great advantage to many self-funded and retired people. Very importantly for that group also we are introducing a system whereby we are going to fully refund imputation credits. And that is very, very important to people on modest incomes who hold shares who will get dividends franked to the tune of 36 cents, which is the company rate, and they might be on 20 and they can't get the other 16. Well under this system they'll get the other 16 as a refund on the franked increment from the Taxation Office. (Note: In this speech also announced company tax cut to 30%)

Journalist's question;
Mr Howard what guarantee is there that the compensation package will not be
watered down in future years?

Well, I think you ought to ask the Labor Party and the Democrats in the Senate about
that? We won't be changing it, I can tell you.

Are you guaranteeing that .... ?

Look we have put something down, it will be presented in that form when the
legislation is introduced, I can categorically assure you on behalf of the Government
that I lead that we will not be watering that down, and I cannot for the life of me
imagine that any future government would be so insensitive as to do that."

So cash refunds were to offset GST impacts on retirees. And, clearly, Labor is proving to be extremely insensitive and possibly hiding the true purpose of cash refunds. Remember, this policy had bi-partisan support at the time.

Chris O'Neill
September 22, 2018

"So cash refunds were to offset GST impacts on retirees."

Since the Labor Party was not proposing to introduce a GST, I wonder what their reason for promising cash refunds was?

September 14, 2018

If I set up an SMSF, is the SMSF able to purchase land, and then lease the land to agricultural users?
If so, what are the rules surrounding the income generated from the leasing?

September 14, 2018

Hi Graham,

I found part of your introduction into the last edition to be quite misleading, in particular the following paragraph:

"Unfortunately for Clearview, the Corporations Act includes anti-hawking provisions limiting such 'disturbance'. And just when it seemed it couldn't get worse, the Commission heard a tape of Freedom Insurance pressuring a young man with Down syndrome to buy insurance. Over $6 billion in commissions was paid to financial advisers by 10 life insurers in the last five years."

The Royal Commission investigations into Clearview have involved directly sold life insurance and not insurance recommended through licensed advisers. To link the Clearview wrongdoings with the commissions that licensed advisers receive is misleading. If anything, this is a reason to seek advice from a licensed risk adviser who can help clients make sense of the very insurance life insurance product landscape.


Graham Hand
September 14, 2018

Hi Joel, fair point, I should at least have started a new paragraph. I accept financial advisers are providing risk (insurance) advice and should be paid for it. My intention was to show readers who are not financial advisers that the insurance industry is also a major source of income for financial advisers, as many people think they only give investment advice. Graham

September 14, 2018

It's also very disconcerting to bandy around the $6B in comms number in isolation. $6 Billion dollars is a lot of money, no denying that. But lets put it in some context. Over the same period there would have been $40 BILLION plus paid out to the insured and their families.

That's based on the numbers supplied by retail insurers to The Risk Store up to 2016 with some allowance for the growth in claims that have been exhibited over the previous 5 years. That $40+ Billion is considerably more than those individuals and their families would have received from the standard "2 units" of cover in an Industry Super Fund. Let's 'Compare that Pair'....

And when we talk about the $6 Billion in comms, if we divide that by 5 years and then divide that among the 20,000 or so advisers listed on ASICs Financial Adviser Register and you get an average revenue of $60,000 per adviser per annum. Hardly earth shattering numbers.

September 14, 2018

I think most useful would be model portfolios depending upon economic outlook from your various contributors. How to invest in bond funds (traps, pitfalls, opportunities, &c.) How to invest in international direct shares (traps, pitfalls, opportunities - e.g. do you really own them?) Hedge funds - how an average SMSF investor can invest - where best to invest - is it better to invest in a fund, or the manager itself? - e.g. K2 Asset Management, Oaktree Capital, etc.

September 14, 2018

SMSF in Pension mode is challenging -articles on asset allocation,income sources generating safe returns, all designed to get to or close to minimum pension payments -in my case 5% of balance -I find my Advisor, the press etc focus too much on people in accumulation phase- I would like to see minimum pension rates reduced by 1%.

September 14, 2018

Every month Cuffelinks should have say 3 brokers provide their best 3 stocks and why. These same brokers to return to Cuffeliks in 6 months time to see and assess their recommendations. Do this on a monthly basis with 3 new brokers and same process. Make it like a game within the broker industry and kudos to the winner and all brokers can explain the reasons why the stock did what they suggested or why the stock stalled or nosedived. Make it fun and not too competitive because the results will speak for themselves. All of your readers will be interested with the picks and the outcomes. Something like an ASX game but for brokers only with a 6 month focus/horizon....ongoing of course.

Wayne Ryan
September 13, 2018

I understand why people don't want to lose their imputation credits. No one wants to give up existing benefits. I would lose a significant refund myself.

There was a time before imputation credits and subsequently a time before refunds to non tax paying pensioners and the sun still rose every morning. The current system can be seen as a concession and the question is whether we can afford it.

I am happy to be corrected but doesn't the current system mean that the part of a company's earnings paid as a dividend to a pension fund mean that no tax is paid on that part of the company's income? I reckon the tax loss could be spent better elsewhere such as in our health and education systems or even a decent unemployment benefit.


Warren Bird
September 14, 2018

Hi Wayne, let me attempt to correct you.

It's not a 'benefit', the introduction of imputation corrected a wrong in the tax system that was identified in the Campbell Inquiry in 1981 under which company earnings were taxed twice and at the 'wrong' tax rate. Tax is paid, but at the tax rate of the company's shareholders.

It also had the effect of encouraging individuals to invest in the local stock market, making more capital available for Australian companies and reducing their cost of capital. It played a part in the enhancement of the strength of the Australian economy compared with the old 'bucking bronco' days that Paul Keating spoke about.

To the extent that no tax is paid it's because the person who owns that income is someone who has a zero tax rate. Mostly these are low income earners, but there are also charities and self-funded retirees with a relatively modest pension payment from their super (Viz those with no more than $1.6 million in their fund - which for a lifetime of saving is not as much as it might seem and most of the people in this category have a lot less than that.) Where no tax is due, none should be paid.

The system also means that tax on company earnings is paid at 47% if the shareholder is a higher income earner, rather than the 30% company tax rate. It’s not just about those on tax rates lower than 30% getting a ‘refund’ or a tax credit – it’s about all the earnings being taxed once at the tax rate of the shareholders.

The system also means that tax on company earnings is paid at 47% if the shareholder is a higher income earner, rather than the 30% company tax rate. It's not just about those on tax rates lower than 30% getting a 'refund' or a tax credit - it's about all the earnings being taxed once at the tax rate of the shareholders.

Ian Thomas
September 17, 2018

You might also apply the same argument to workers who have exess tax deducted from their wages. Deny them a tax refund?

Chris O'Neill
September 22, 2018

Company tax imputation means that shareholders are imputed to pay their company's tax just as employees are imputed to pay tax instalments taken by their employers and sent to the tax office. Any condition put on this is denying the meaning of the word "impute".

Jon Kalkman
September 10, 2018

As always we need to distinguish between the tax paid by the fund and the tax paid by members (or their beneficiaries) when they make a withdrawal from the fund. Pension funds have paid ZERO tax on income and capital gains since 1992. That has never changed, even when Mr Shorten was Minister for Superannuation in 2010. Accumulation funds pay 15% tax on income and two thirds of that (10%) on realised capital gains. That has also never changed.

On death a member's super balance must be cashed out, unless it is a reversionary pension, usually paid to the surviving spouse. This means the pension continues to be paid to the new recipient on the same terms as before.

Before it was changed by Treasurer Wayne Swan in about 2012, a pension fund ceased to be a pension fund on death and reverted to an accumulation fund where the assets were then subject to 10% capital gains tax when they were sold for cash. After the rule change, the pension fund remained a pension fund until all the assets were sold, free of capital gains tax, and the death benefits are distributed to beneficiaries.

The tax paid by beneficiaries of the death benefits depends firstly on whether they are entitled to be beneficiaries under the super rules and secondly whether they are entitled to receive it tax free under the tax rules. A spouse, dependents under the age of 18 (students under 25) or someone who was in an interdependent relationship with the deceased generally receive the death benefit tax-free. Adult children are entitled to be beneficiaries but must pay tax. Refer to Noel Whittaker's article on death tax in this edition.

A death benefit can be paid directly to the beneficiary or to the beneficiary via distribution through the estate depending on any binding nominations and the provisions of the will. The death benefit is distributed by the trustee of the super fund and does not form part of the estate unless that is the express wish of the deceased. The ultimate tax payable is determined by the beneficiary's relationship with the deceased.

September 07, 2018

Could you please explain what happens regarding unrealsied capital gains in the super fund on the death of the last surviving member. For example, is CGT payable on these and then the whole taxable part of the fund taxed at 15% plus medicare levy (assuming no dependents)?

September 06, 2018

If there was a 15% tax on Super pensions (like there was when the refund thing first started) wouldn't the refund-of-franking-credit problem go away? The problem, as I see it, is unsustainable changes to legislation (0% tax on pensions) which lead to (necessary) claw-back (no refunds) down the track.

Jon Kalkman
September 06, 2018

Super rules change so often people lose track. If you go back far enough, before super was made universal, retirees were forced to take all their super as a lump sum at age 65 and the tax was calculated by adding 5% of the lump sum to their taxable income in that financial year and they paid normal tax. And everyone retired on 1 July.

In Keating's original plan for universal super in 1992, there was no tax on contributions or earnings and 30% tax on the benefits phase (lump sums and pensions), just like in other countries. Keating then realised he would have to wait 30 years before the government collected any tax. He then settled on a system where the super fund paid 15% tax on contributions and 15% on super earnings from all its investments in accumulation mode. Since that time, a super fund in pension mode has always paid zero tax.

We must not confuse this tax from the tax paid by the member when they take money out of the super fund after retirement. Originally this money, taken from a super fund, was taxed normally, but it was entitled to a 15% rebate to compensate for the tax paid by the fund in accumulation phase. I have shown earlier that this collected very little tax and so when Costello made all super payments tax-free after 60 he was very popular but there was little cost to revenue.

That zero tax on a super pension fund earnings has nothing to do with the refund of franking credits. It applies to all the fund's earnings. Franking credit refunds only apply to dividends from Australian shares and anyway came in much later.

Taxing super pension funds at 15% raises a number of other issues:
It would break a social contract of 25 years and severely disrupt the plans of retirees and everyone planning their retirement.

Worse, it would make accumulation funds and pension funds identical and therefore no one would have a pension fund which require minimum pension withdrawals that increase dramatically with age. These mandated minimums force retirees to progressively remove money from the concessionally taxed area of super, often taking more than they need, when they are too old to make new contributions to super. That money is then subject to normal tax. In fact this is an option for dealing with the Shorten proposal. If I am going to lose my franking credit refunds anyway, I can move my super from pension phase back into accumulation. I still won't get my cash refund but I will no longer be forced to take out more money than I need. My nest egg will last until the day I die.

If all super money was retained in accumulation funds in retirement with no obligation to draw down any of it, it would require a punitive death tax to ensure that beneficiaries did not benefit from these tax concessions.

A 15% tax on the super fund may still not soak up all the franking credits and then there would still be the question of refunding the excess as cash or not

Chris O'Neill
September 22, 2018

I don't know that taxing super pension fund earnings at 15% would severely disrupt the plans of retirees and everyone planning their retirement (retirement is an arbitrary time for switching the earnings tax rate from 15% to 0%) but it would certainly put everyone off being forced to take minimum pension payments.

I take the 0% tax rate as motivation for compulsory pension payments. That motivation would substantially disappear with non-refundable imputation credits in funds that can't otherwise use them.

SMSF Trustee
September 23, 2018

Chris, retirement isn’t an arbitrary time at all. It’s when the person’s regular income stops! That’s a pretty major juncture in someone’s life.

Chris O'Neill
September 24, 2018

I didn't say it was an arbitrary time I said it was an arbitrary time for switching the earnings tax rate from 15% to 0%. The point is there is no fundamental reason why someone should pay 15% tax on their retirement fund earnings at one time and 0% tax on their retirement fund earnings at a different time. It's still a retirement fund either way.

SMSF Trustee
September 24, 2018

Chris, if the moment of retirement is ''arbitrary'' for a different treatment of the earnings of the fund, then when? Any other moment in someone's life is going to be far more arbitrary than the obvious time when they become financially reliant on their superannuation.

Chris O'Neill
September 26, 2018

Any time for switching from 15% tax rate to 0% tax is arbitrary because there is no fundamental reason why there should be a switch. The purpose of the fund is always the same, to provide for retirement. If the purpose is the same then why is the tax rate not the same?

SMSF Trustee
September 26, 2018

That clarifies your view, Chris. This nuance wasn't evident to me in what you'd previously written. I still don't agree with you - I see reasons for the tax rate dropping at that point - but I understand what you're saying and why. Let's leave it at that.

Chris O'Neill
October 04, 2018

"Taxing super pension funds at 15% raises a number of other issues:
It would break a social contract of 25 years and severely disrupt the plans of retirees and everyone planning their retirement."

A person's retirement fund would now be taxed at 15% for, say, 40 years while they're working and at 0% for, say, 20 years while they're retired. Changing the last 20 years to 15% while the first 40 years is already at 15% anyway would not cause a severe disruption. Certainly a much lower disruption than Keating imposed with his uncompensated 15% tax rate for the whole of a person's working life.

September 05, 2018

I have a question on franking credits, and I am possibly not the sharpest tack in the packet, but...

A public company makes a profit and once declared, a dividend is announced, which is to be paid to the joint owners [shareholders] of the public company, now the company pays taxation on their entire earnings pre-shareholder distribution, the shareholder receives his/her dividend which has had taxation taken out, now if this dividend happens to be in a Super fund, eg, SMSF, which are taxation free on earnings, we receive the taxation paid back to us, and it’s known as Franking Credits. Is this ok so far ???

Surely, to simplify matters, could the public company pay all shareholders first, the remaining would be their company profit, to be taxed at their going rate - the funds distributed to shareholders would be untaxed, so, shareholders outside the super umbrella would pay at their own marginal rate and the SMSF’s in pension mode, would have no need to apply for their now non existent franking credits as they pay no tax on earnings.

I realise I must be missing something, could you enlighten me as to where I am missing something, because the last thing I want to do is give Shorten my money to waste from my earnings,


Jon Kalkman
September 05, 2018

Bill, Australian companies are required by law to pay tax on the profits generated in Australia. They have no choice, they are required to pay tax on all their profits. Dividends are paid out of some or all of the after-tax profits. The after-tax profits retained by the company are reinvested to grow the profits in the future. In theory, a lower company tax rate should mean higher dividends and more reinvestment.

Before 1987, shareholders also paid personal income tax on the dividends received. Profits were then taxed twice; tax was paid by the company and then again by the shareholder. Treasurer Keating introduced a system of imputation or franking credits. This system requires the shareholder to include the company tax portion of their share of the profit as part of their taxable income, because the whole (before-tax) profit actually belongs to the shareholder, but when they receive the dividend, they find the company has already paid tax on their behalf. That is why it is often referred to as franking because it is pre-paid.

As tax is pre-paid on the dividend, imputation allows the shareholder to claim a tax credit for the company tax already paid when they complete their personal tax return. Before 2001, these tax credits could be used to pay some or all of the shareholder’s personal tax liability. If the tax credits exceeded the tax liability, they were simply forfeited.

This was changed in 2001 so that, just as a PAYG taxpayer, if the tax pre-paid exceeds the personal tax liability, the taxpayer is entitled to a cash refund. If the tax paid is insufficient, they need to pay the difference.

This system ensures that Australian shareholders always pay tax on their dividends at their marginal tax rate. It also ensures that foreign investors, who do not have access to franking credits, always pay the company tax rate on their Australian dividends.

If the company tax rate was zero, Australian shareholders would still pay tax on their dividends at their marginal rate even if no tax would be pre-paid, but foreign investors would pay no tax in Australia. This is the genius of the imputation system; Australian shareholders only ever pay tax on their dividends at their marginal tax rate. Foreign investors always pay tax at the company tax rate on their Australian dividends.

Mr Shorten's proposal is that franking credits would still be allowed to pay a personal tax liability, but excess credits will no longer be refunded as cash to taxpayers whose marginal tax rate is lower than the company tax rate, unless the taxpayer is a member of an exempt group. This proposal has created many difficulties that have been well canvassed on this website and others. Suffice to say, that if taxpayers on low tax rates no longer receive a cash refund for the excess tax paid, they will no longer be paying tax on their dividends at their marginal tax rate. SMSFs in pension phase have a zero-tax rate. If they are denied this cash refund, they will be treated the same as foreign investors, paying the company tax rate on their dividends but zero tax on the income from all their other investments.

So, Bill, firstly, companies do not have a choice. They are required by law to pay the tax office first. Australian taxpayers with low marginal tax rates can then claim a cash refund for excess tax paid that they are entitled to under the law. Secondly, the company cannot pay the shareholder first because then the foreign investor would never pay tax in Australia as the ATO has no jurisdiction over them.

Tony Reardon
September 06, 2018

I think that altering the taxation rules to allow companies to classify dividend payments to shareholders as expenses and thus deduct them from profits before tax would be an excellent move. I see a number of arguments for this.

Currently companies can raise money from shareholders or from debt. Interest payments are deductible expenses whereas dividends are not, which distorts the relative costs of funding.

The current system of franking credits is convoluted and complex. Expensing of dividends would be in line with treatment of other company outgoings. The treatment of the dividends in the hands of the recipients would again be straightforward and no different to any other income.

In the case of amounts paid to foreign entities, the ATO already has a withholding tax system whereby amounts are deducted for payments of interest, royalties and unfranked dividends. If all dividends were simply deductible and thus unfranked, the withholding tax would thus capture a share for the ATO without any further changes needed.

September 03, 2018

Just been talking to a Cronulla real estate agent.
What were routine sales are now falling. Example- a 62 year old employed guy can’t borrow $200k on a $1million property ie he has $800k deposit available but because of fear of regulatory sanctions re concerns about ability to repay, no one will advance funds.
I am also hearing from my line banker about 40% of applications that would have got through are now dead in the water.

September 02, 2018

Graham – I was taken with Adam Creighton’s recent article in The Australian suggesting that it might be time to cease our compulsory superannuation system. Without any intent to malign those in the investment management and administration of superannuation I personally agree in general with his rationale - as you might expect from previous comments of mine regarding super generally. I would clearly support all Australians having to contribute to an eventual State pension such as the Brits or the Americans but Creighton didn’t mention that and in any case I suspect Australians wouldn’t favour it either. Do you or any of your contributors anticipate responding to Creighton’s suggestion? Regards Carlo

August 31, 2018

My 13 yr old granddaughter asked her father “ Dad, what’s the difference between Left & Right in politics?” Her dad explained as best & fair as he could. She replied “ Why would anyone vote left? Yep 13 yrs old. Didn’t need to discuss SMSF’s or Franking credits!!!

Philip - Perth
September 20, 2018

And mine asked "why would anyone vote Right?". In large part it's about whether someone is prepared to share their bounty rather than believes all reward must be retained by those who "earned" it. Many young people lean Left in their youth, then shift to the Right as they start to earn (and want to keep those rewards) and then shift back to the Left as they age, get wiser or just less desperate to get ahead and realise that we must share because that while not all are as capable as others, many are equally deserving. It's generally only those between about 25 and 60 that believe it's all about them...and that's understandable, but unfortunate.
As perhaps the only (openly) socialist in the Money Business I have these arguments routinely and have done so for my 35-odd years in the business. It's interesting to watch how people change over time. Question: if you are more intelligent and capable of earning more than others are you more deserving? OR are you fortunate to be genetically blessed (i.e. an accident of birth - thank your parents) and should you be more grateful?

Chris O'Neill
September 23, 2018

"and then shift back to the Left as they age"

but much more likely to go to the Right.

August 30, 2018

Hi Graham

Housing affordability has to be the critical social and investment issue for our times. The boomer generation are largely sitting pretty, having bought in when prices were reasonable and then benefited from just about every favourable tailwind imaginable (ie. low interest rates; lax bank lending standards; foreign buyers; favourable tax arrangements, such as negative gearing, and lastly, encouragement for SMSFs to pile in also). The property market surged on and on. The result is that now whilst many of the boomers own their homes outright or hold extensive property portfolios, the next generations have had their home ownership dreams dashed.

The key question now facing many boomer parents is to what degree should they factor in assisting their children to buy a home into their retirement plans. And how should they manage their children's expectations about this. Cuffelinks has explored this issue in the past and it warrants further examination.

In the meantime here's hoping for a thumping Labor majority in both houses following the next Federal election and they we can at least see negative gearing on property given the bullet it deserves.

David (a different one)
August 31, 2018

This is a very interesting topic. I'm a late-stage boomer and although I've only ever owned property to live in, I found myself almost automatically adopting the "Yes, but interest rates were XX%" defence on the question of whether housing was more affordable then or now when under relentless attack via those pesky younger types.

I've also always opined that very few people have the actuarial skills to understand if their investment in investment real estate was a good thing or not - it was more a "faith-based" investment.

So because I love a good spreadsheet, I went back and followed my (relatively simple) real estate history, and allowing for inflation, wage trends, interest rates and the like came to the unmistakable and informed opinion that it simply was much, much easier "back in the day" and so I had to change my thinking on the issue and admit that the noisy young people had a point.

I don't have kids so it's not going to be a problem for me, but you raise a good point about the expectations - to decide an amount, from zero upwards, that will satisfy everyone, perhaps involves laying out the family finances in a way that may not be comfortable. And I worry about the need for larger capital sums later in life for nursing homes etc. Not every family will be in a position to offer this help, especially if you have a large brood.

Perhaps, instead of a $ gift, joint-ownership is a possibility, on the grounds that the kids get it all in the end anyway? But I'm sure that will present its own problems.

And whether you think it's a good thing or not, I think a thumping Labor victory is now more or less inevitable.

September 06, 2018

Thank you David, at last, there is one boomer who understands what I have been harping on about.

When you take the median price and the median wage, then factor in inflation, the repayments on a house back in the 'horror days' of 18% interest rates are actually comparable (as a function of percentage of pay) to 'normal' rates at around 7%. Why ? because the denominator (house price) versus wages (numerator) has far outstripped the other in terms of growth.

Also, 'the sticks' back in the days when boomers bought were relatively near to the CBD (where the majority of jobs are expected to be). Advance a number of years and thanks to urban sprawl outwards, instead of upwards, 'the sticks' now is much further out. It's a no brainer to see but far too many boomers are myopic and / or don't want to or can't accept or handle the truth.

Peter Taylor
September 08, 2018

To add balance around the era when interest rates hit 18% typically the first home buyer iliving in a single bathroom home. There was a single drive way with a single carport enclosed with wooden gates rather than a auto roller door. The kitchen was smaller and if you compare kitchen cabinets to todays homes you will see the quality was lower. Retaining walls were made from sleepers often DIY rather than the turn key house purchases today. Wooden pergola was the alfresco area of choice rather than colourbond patio. Roof insulation was often absent as was the ducted cooling system. Appliances were much more expensive, a 26 inch mono TV without stereo or remote was about $1000 in 1989 and a microwave oven $400

Terry Firkin
August 30, 2018

Would love to see an article on how to find a specialist accountant for SMSF and lawyer for advice on will re SMSF.

August 30, 2018

Hi Graham, re your comment on 'the longest bull market' ...

Technically the US had an intra-day level where the S&P500 dropped >20% from its post crisis high. By close it was <20% during Oct 2011.

Does this suffice for a bear market, thus the bull market only being 7 years to date and not the longest bull market in history?!



Graham Hand
August 30, 2018

Good point, Adam. Note I did say "On some measures ..." in my editorial, but take your point. Cheers, Graham

August 29, 2018

All Aussies should spend a bit of time in Zimbabwe and rural South Africa(or any socialist or religious dictatorship)to get a perspective on how blessed Australia is to have the rule of law,sound institutions and governments that can be turfed out.
Although there are a number of things like a plot of land and free housing and no income taxes for tribal people and some income earned via manual labour,personal services etc,South Africa's unemployment rate is estimated to be somewhere between 35-40% and in Zimbabwe,85-90%.
Before the latter's currency collapsed a $1trillion Zmb dollar couldn't buy a loaf of bread!
You paid for a meal before you ate because the price could change a couple of times before you finished. Even now,with USD as base currency the most you can draw out of a bank account is $30 a week!
The Zimbabweans are getting more confident things are improving but pessimism about SA , in part because of increasing threats of more asset grabs, incl farms a la Mugabe era Zimbabwe and massive population growth; Zulus try to have as many kids as possible and there is a constant flow of illegal migrants from the north( could be more than 10million out of a possible 58 million but no census is capable of being undertaken).White population is now around 5 million I understand.Pretoria has a low number of whites ,whereas Cape Town has a more diverse mix.
I didn't realise that the coloured population mainly came from Muslim Malaysia and Indonesia( to work for the Dutch,whereas the Hindu Indian population were contracted by the Brits to work in the cane fields.
No local tribes were ever enslaved,although all non-whites were totally demeaned and degraded under the apartheid regime.
Swaziland was a bit better than rural SA but the King ( who takes about 25% of income of selected major projects and has 11wives who all demand to go on his private jet to shop at Harrods etc and each have their own mansion and latest cars) has to be managed by his mother.
After visiting the Apartheid and Mandela museums in Soweto ( highly recommended and sobering re the appalling apartheid era),I didn't realise how much the ANC was and continues to be under the influence of communism and also how poorly educated some of the political leadership are.
For example,the current Agricultural Minister,when asked was he concerned about the growing concern that South Africa may not produce enough to feed its people,responded by saying there was no concern because people could get their food from Pick n Pay and Woolworths!
A local SA joke about the local Toyota minivan taxis that run huge numbers of people in and around from the black/coloured townships.
How do you know when one of these taxis is full?
When there are two people sitting on the right side of the driver( ie between him and his side door)!
There is massive petty and not so petty crime but the vast majority of black people we have met everywhere have been extremely friendly and helpful and have a smile on their faces.

September 06, 2018

With the greatest of respect, the tables have now turned and it is an era of 'reverse apartheid' where the white farmers are being demeaned and degraded.

And a museum to Mandela...just like having a museum to the IRA; Mandela was convicted of 'sabotage' and of bombings in which innocent people died. If that's not the definition of terrorist acts, I don't know what is. He was in jail for that reason, beyond merely as a "political prisoner" who disagreed with the establishment. He was a terrorist, pure and simple.

But that, and the actions of his wife re: Necklacing and Stompie McKenzie are all forgotten, and the actions in the second half of his life are lauded.

August 29, 2018

Graham, see the article below.

It appears that this only had a small mention within the Royal Commission , but clearly the public is being mislead about “Balanced”

September 14, 2018

That article hits the nail on the head. If industry funds are generating such higher returns over and above the fee difference compared to their competition, then it's more than likely as a result of higher risk than superior management. This is especially the case as much of the underlying fund management is outsourced anyway. And since the fee difference is now very small since RG97 forced proper disclosure, it seems it's almost certainly down to increased but undisclosed risk.

David A
August 29, 2018

Hi Graham,

I am seeking some feedback on the Labor Party’s proposed 30% minimum tax rate on distributions from discretionary trusts.

My situation is that I have been working and saving hard for the last several decades with the intention of self-funding an early retirement until I can access my superannuation, at which time I will be fully self funded by that. My investment vehicle of choice has been a discretionary family trust. All of my savings outside of superannuation have been invested within the trust.

The distributions from the trust over the years have only ever gone to my partner and myself, and we have always been on marginal tax rates of over 30% prior to the distributions, so we would never have been the target of this 30% tax on discretionary trust distributions.

I have large unrealised capital gains built up within the trust so selling assets when I retire just to turn around and reinvest outside the trust in order to avoid the proposed tax will penalise me greatly by way of capital gains tax and other costs – in this scenario the sequencing of this loss to CGT as soon as I retire would also significantly reduce my future retirement earnings.

Am I right in saying that if the Labor Party’s proposed 30% tax were in place that I would be paying $11,100 income tax on the first $37,000 distributed from the trust in my self funded retirement, whereas someone invested in their own name would pay the normal amount of tax which is $3,572? The difference in this instance would be 22% less after tax income each year - from $33,428 to $25,900.

If the Labor Party gets this legislation passed it could more than triple the tax on my soon to be only source of income generation in retirement compared to what it would otherwise be.

If I had known that I wouldn’t be able to get my investment returns out again at my individual tax rate I certainly would have done things differently. It’s greatly concerning that the goal posts can be moved so easily after decades of setting myself up.

I realise there are things I can do to minimise the effects of this tax by selling then reinvesting in my own name, but this involves me paying a high price in other ways. Seems like I’m going to be another case of collateral damage in Bill’s war on anyone he thinks is too well off.

I have seen very little commentary on this topic in the media, possibly Cuffelinks could cover this further, looking specifically at some of the unintended consequences of this proposed policy.



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