Labor’s proposal to scrap cash refunds from unused dividend imputation credits

23 May 2018

David Woolley, Wealth Adviser |

Labor recently announced that, if elected, from 1 July 2019 they would remove refunds for excess imputation credits for individuals and superannuation funds. Whilst it is too early to take any action based on this proposal, we have reviewed the possible impacts.

It is worth noting that Labor subsequently clarified that a carve-out would apply for:

  • Age Pension and allowance recipients, and
  • SMSFs with at least one Age Pension or allowance recipient before 28 March 2018.

Labor’s plan would reverse the Howard Government’s decision to introduce cash refunds for excess imputation credits from 2001. Imputation credits will still be able to be used to offset tax owing to the ATO, however taxpayers with no tax liability – typically retirees and self-managed super funds – would no longer be eligible for cash refunds.

BDO’s National Tax Director, Lance Cunningham, has spoken out against the proposal and advocated for a wider review of the dividend imputation system and imputation credits as part of a holistic examination of Australia’s tax system. 

To illustrate the impact of the proposal, we looked at the example of a self-managed super fund with two members who each have a balance of $1M (i.e. total fund assets of $2M) and compared this to an individual also with $2M invested in Australian shares in their personal name.


All members receiving a pension
All members in accumulation phase
Diversified portfolio* Loss of $7,900 refund No impact No impact
Fully invested in Australian shares** Loss of $34,300 refund Loss of $17,100 refund Loss of $11,200 refund

* Diversified portfolio yields 3.4% p.a., 27% franked.
** Share portfolio yields 4% p.a., 100% franked, and is the individual’s sole source of income.

The dollar impact of the removal of excess imputation credits will depend on the specific circumstances of each taxpayer, however the above example highlights that it would result in a significant cost for many investors.

As pooled superannuation funds (e.g. industry and retail funds) will generally have sufficient taxable income from contributions to continue fully utilising their imputation credits, the policy would have a disproportionate impact on SMSFs with at least one member in pension phase. Whilst an SMSF could seek to add younger members who are actively contributing, this is unlikely to be feasible or appropriate in many cases. Unfortunately, Labor appears to be (unfairly) targeting SMSFs with this policy.

The removal of cash refunds is likely to see many investors respond by reducing their allocation to Australian shares in favour of other asset classes, such as property and global shares. Increased diversification of portfolios may ultimately be a healthy development from a risk management perspective - and would be an unintended consequence of Labor’s policy.

The policy may also drive SMSFs to transfer monies from pension to accumulation phase to the extent that imputation credits are available to offset the 15% tax on investment earnings. Whilst funds would still lose the refund of excess imputation credits, a reduced minimum pension requirement may have longer-term benefits from retaining additional monies in the low-tax superannuation environment (assuming the pension income is not required for living needs).

In summary, many SMSFs and individual investors who have legitimately arranged their affairs to rely on cash refunds from imputation credits would be significantly worse-off under Labor’s policy.  It is, however, too early to take any action given that Labor still needs to be elected before the policy is implemented.


The information in this document reflects our understanding of existing legislation, proposed legislation, rulings, etc., as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances.

The financial product advice or information in this document is of general nature only and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser, whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.

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