Is there an ATO form that will allow an SMSF to apply for a refund of franking credits during the financial year?
These forms for Individuals and income exempt entities currently exist.
The Australian tax office have forms:
Application for refund of franking credits for individuals NAT 4098
Application for refund of franking credits –
Endorsed income tax exempt entities and deductible gift recipients NAT 4131
Currently there is no ability to apply for a refund of franking credits for SMSF's throughout the financial year.
Is there legislation stating that a refund of franking credits cannot be allowed during the financial year? If so, can this be changed?
The problem is cash flow. Most SMSF's invest in Australian shares that issue dividends that are franked.
There is likely thousands of Australians who are in pension phase with their Self Managed Super Funds.
The franking credits can form up to 30 percent of a retires income (Exempt current Pension Income - ECPI). This part of an SMSF income is unavailable until (usually) an accountant completes and lodges the funds tax return after June 2021.
The entirety of the dividend is to support Retirement phase income streams, but as detailed below, the franked portion isn't available for many, many months to support the income stream.
Depending on an accountant's work load they have until 16 May 2022 to lodge the Funds tax return.
Some of their clients may be earlier, but there will be those at the bottom of the list that are lodged last.
To demonstrate...
For the FY 2020-21, some Corporations issue franked dividends in July 2020.
For the dividends issued in July 2020, this could be a wait of 22 months before the franking credits are refunded.
For any dividends issued in August 2020, this could be a wait of 21 months before the franking credits are refunded.
For any dividends issued in September 2020, this could be a wait of 20 months before the franking credits are refunded. and so forth.
It has been suggested to only invest in shares that issue non franked dividends. This would be a poor choice as there are not many companies that do this. The returns are woeful. An SMSF may only last half as long, resulting in the retiree's needing support with the government age pension.
Conversely, for an individual’s income, the Quarterly Instalment activity statement NAT 4197 (PAYG) form is used to make tax payments to the tax office each 3 months during the financial year.
For SMSF income streams the cash flow would be eased considerably if they could apply for a refund of franking credits each 3 months say of the financial Year. These refunds would be consolidated with the normal end of year tax return.
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