Labor’s proposed change to franking credit refunds on dividends has provoked quite a debate in a short space of time.

For a quick primer, under the imputation system, companies who pay franked dividends to shareholders can pass on a tax credit for company tax already paid. When shareholders receive the franking credits, they can be used to offset other income tax liabilities.

When shareholders have low or no taxable income, such as those drawing a super pension, franking credits may be paid out as cash refunds. This doesn’t matter whether your pension income is $18,000 or $180,000.

Where people stand on it will likely be determined by any benefit derived from it. Investors need to be aware while much of the focus has been on individual shares, this will also have an affect on pension returns if they’re holding funds that have franking credits paid to them. In that respect, we would have many affected clients and given we work for our clients, it’s a change we’re not in favour of.

With that in mind, some of those being profiled as affected by the change haven’t exactly helped their cause. There’s a strange phenomenon in the Australian media where the moment someone is about to feel the pain of a government change they immediately claim ‘battler’ status.

Whether by accident or by design, the media has mostly focused itself on tales of woe from retirees living in affluent NSW suburbs who have decent levels of wealth and income. One retiree claimed to be ‘just scraping by’ on $86,000 per annum while admitting he kept a holiday property for his children to use.

These profiles are hardly likely to win the hearts and minds of younger voters who are the target of Labor’s argument that only the well-off will be affected. Unfortunately, there are plenty on significantly lower incomes, with fewer assets, who gain a nice bump from their cashbacks and will feel a lot more pain.

Not that the regular reshuffling of the rules around retirement hasn’t been a bipartisan act. As we all remember, the Liberals and the Greens joined together to tighten up pension eligibility only last year.

There have been the usual groans (like with the pension changes) of “why did we bother saving and investing” from some quarters. While the frustration is understandable, no matter the government fiddling, wealth will always provide options in life. Wealth will fund a better lifestyle than one without. And there’s no question, wealth will mean someone will be better able to take care of themselves in retirement than someone without wealth.

The important thing to remember is we don’t know when the election is coming, but some hip pocket hits are announced early so they fade into the background by the time the day rolls around. If franking credits are important to you, it’s important not to forget this.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

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