In times of great change to income tax and superannuation, or when political parties release proposed policies, professional advisers are in a unique and privileged position when it comes to their clients.
The privilege comes from the fact that in most cases their clients trust them and seek their advice. This includes not only helping structure their financial affairs, but also dealing with the effects of changes and proposed changes to taxation and superannuation policy.
Two examples of this are the introduction of the new pension transfer balance cap from July 1, 2017, and the evolving policy Labor has released to stop excess franking credits on dividend income from resulting in a tax refund.
Professional advisers’ industry organisations are another aspect of their privilege. It was through the consultation process with many such bodies that the Coalition government switched from the draconian, retrospective changes it had first announced, to a more equitable superannuation transfer balance cap.
This means that, during the introduction of the new system, advisers not only reduced the fear surrounding the superannuation changes by being a major source of information for their clients, they also helped reduce the impact of the changes.
The level of fear Labor’s imputation policy generated for individuals and superannuation funds in some cases exceeded concerns when the Coalition first announced changes to superannuation.
Many Australian investors and self-managed super funds have invested in dividend-paying shares over the last almost 20 years, and planned their retirement and financial affairs based on excess franking credits producing a refund. They would have the rug pulled out as a result of the proposed change.
The justification for some of the superannuation changes was an attempt to ensure the financial sustainability of the system, and a similar argument is being mounted to justify the change to the dividend franking system.
Clearly, however, the full impact of this change was not carefully thought through. Labor has now altered the policy to exempt full and part-time pensioners, non-age pensioners on other allowances, and SMSFs that have at least one pensioner or person receiving an allowance.
At the heart of most tax changes should always be fairness and equity. Any system that punishes one group of taxpayers over another should be opposed. It is no coincidence that under the proposed changes to the franking system, most SMSF members would be disadvantaged, while members of industry funds would not.
With privilege often comes responsibility and obligations. For professional advisers, this means not only assisting clients with change, but also opposing change when bad and inequitable policies are put forward.
To use an Australian rules term, this does not mean playing the man, by attacking the political party with the policies. Instead, it necessitates professional advisers educating and informing their clients about the impact of changes – so they can make an informed decision at election time – and advocating through their professional bodies to have changes made to inequitable and unfair policy.
TOPICS: Advice policy