Importance of franking to a SMSF retiree? - Aussie Stock Forums

# Thread: Importance of franking to a SMSF retiree?

1. ## Importance of franking to a SMSF retiree?

Just seeking information if people don't mind offering their thoughts.
I am wondering about the significance of the level of franking to a SMSF holder who is already in the pension phase? eg: SUN at 100%, QBE at 20% etc.

Regards

Rick

2. ## Re: Importance of franking to a SMSF retiree?

Originally Posted by Muschu
Just seeking information if people don't mind offering their thoughts.
I am wondering about the significance of the level of franking to a SMSF holder who is already in the pension phase? eg: SUN at 100%, QBE at 20% etc.

Regards

Rick
Rick, I have recently moved a large part of my SMSF to a pension phase, so I have an real interest in your question.

As I understand it, bearing mind that earnings in the pension phase are taxed at zero, compared to 15% while in the superannuation phase, the franking level can be significant to the after tax return on investment.

Using your the two companies in your question, at Friday's close of business, based on the last 2 dividends announced, the after company-tax dividend yields were:

SUN 14.26% ((0.75 divided by 5.26) x 100)
QBE 7.47% ((1.26 divided by 16.87) x 100)

Based on the franking levels of 100% for SUN and 20% for QBE, for a SMSF in a pension phase, the yields become:

SUN 20.37% ((0.75 divided by (1 - 0.3) divided by 5.26) x 100)
QBE 8.11% ((1.26 divided by (1 - 0.3), less 80% of the resulting \$1.80 - \$1.26 = \$1.368, divided by 16.87) x 100).

Interestingly, if the franking levels were reversed, ie. 20% for SUN and 100% for QBE, the yields become:

SUN 15.48%
QBE 10.67%.

If I've got this wrong in any way, any corrections would be welcomed.

regards YN.

3. ## Re: Importance of franking to a SMSF retiree?

Many thanks for the comprehensive reply NY. The difference is a significant one. I apreciate your effort in going to so much trouble.
Regards
R

4. ## Re: Importance of franking to a SMSF retiree?

Rick, no problem at all. Your question also helped my understanding too.

5. ## Re: Importance of franking to a SMSF retiree?

If you are already in pension phase and are over 60 then all of the income you receive is taxed a 0%.

So it doesnt matter either way whether is 1% or 100% franked because you dont pay any tax on it anyway.

6. ## Re: Importance of franking to a SMSF retiree?

Originally Posted by mattlaw
If you are already in pension phase and are over 60 then all of the income you receive is taxed a 0%.

So it doesnt matter either way whether is 1% or 100% franked because you dont pay any tax on it anyway.
It does matter, because you can claim the franking amount back, as you do not need to pay tax. So if its gully franked you will get a lot more back than something partially franked

7. ## Re: Importance of franking to a SMSF retiree?

Originally Posted by prawn_86
It does matter, because you can claim the franking amount back, as you do not need to pay tax. So if its gully franked you will get a lot more back than something partially franked
Thanks Prawn, and here's a quote from E-Superfund:

Quote:
Question: What happens to my Franking Credits from Shares when I commence a Simple Account Based Pension or TRAP (Transition to Retirement Account-based Pension)?

Unquote

Also note that these pension arrangements can start as early as 55 years.

8. ## Re: Importance of franking to a SMSF retiree?

This situation isn't unique to SMSF's. Someone who doesn't earn enough to pay tax outside of super will also receive a cash refund from franking credits.

9. ## Re: Importance of franking to a SMSF retiree?

Originally Posted by Julia
This situation isn't unique to SMSF's. Someone who doesn't earn enough to pay tax outside of super will also receive a cash refund from franking credits.
Same for charities that hold stocks. If they are a registered charity and dont pay tax, then a simple form to fill out and they get thie franking credits refunded to them.

10. ## Re: Importance of franking to a SMSF retiree?

Originally Posted by Julia
This situation isn't unique to SMSF's. Someone who doesn't earn enough to pay tax outside of super will also receive a cash refund from franking credits.
They will receive a full refund. In the 2008-2009 year, employees who earn between \$6000 and \$34,000 who are on on a marginal tax rate of 15%, will receive half of the franking credit amounts.

11. ## Re: Importance of franking to a SMSF retiree?

Maybe I am repeating myself, haven't read the whole thread, but about 2 weeks ago I got the full refund of franking credits claimed, credited directly to my bank a/c. I had downloaded the form from ATO and did the return over the phone. Refund - within 10 days. I am in an allocated pension fund. Very easy.

#### Posting Permissions

• You may not post new threads
• You may not post replies
• You may not post attachments
• You may not edit your posts
•
Aussie Stock Forums