CPA Australia has raised concerns that proposed changes to superannuation tax rules flagged by Federal Treasurer Jim Chalmers could unfairly penalise Australians’ retirement savings by mishandling the treatment of franking credits.
In a submission on the exposure draft legislation for the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill, the accounting body argued the current approach overlooks the purpose of franking credits and could distort investment decisions.
CPA Australia Superannuation Lead, Richard Webb, said the proposed framework would lead to inequitable outcomes for superannuation funds, particularly if franking credits are excluded from the calculation of fund earnings for Division 296 purposes.
“Franking credits exist to ensure income is taxed at the shareholder’s correct tax rate. Ignoring them in the new super tax framework produces an unfair and inconsistent result,” Webb said.
“For many super funds, franking credits are effectively a refund of tax already paid. Treating those refunds as irrelevant when calculating earnings is at odds with how our tax system is designed to work.”
The organisation warned the draft legislation could penalise super funds holding assets that generate franked dividends, even where those dividends ultimately attract little or no tax due to superannuation’s concessional tax rates.
“In practice, the proposal could result in identical investment returns being taxed differently, simply because one includes franking credits and the other does not,” Webb added.
“This creates artificial incentives that could push trustees away from Australian equities, potentially harming both retirement outcomes and capital markets more broadly.”
CPA Australia said franking credits and similar tax offsets should be treated as part of a super fund’s net income to reflect their economic value, rather than being excluded under the proposed Division 296 methodology.
According to the submission, a case study demonstrates how the current policy settings produce higher calculated earnings for franked dividends compared with unfranked dividends, despite the same cash dividend being received.
“This isn’t about gaining an advantage,” Webb said.
“It’s about fair and consistent taxation that reflects real income, avoids unintended consequences, and maintains confidence in Australia’s retirement income system.”
CPA Australia urged the government to amend the legislation to ensure franking credits and similar tax offsets are properly recognised when calculating superannuation fund earnings.
“Given the complexity and long-term impacts of these reforms, it’s essential the final legislation gets the fundamentals right,” Webb said.
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