CPA Australia has raised concerns that proposed changes to superannuation tax rules could unfairly reduce Australians' retirement savings through the treatment of franking credits.
The professional body made the warning in a submission on the exposure draft of the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025. It argued the draft provisions do not properly account for the role of franking credits in the tax system and could distort how superannuation funds invest.
The submission was prepared together with Chartered Accountants Australia and New Zealand and the Institute of Public Accountants.
Richard Webb, CPA Australia's superannuation lead, said the draft approach would create uneven outcomes for funds, especially where franking credits are excluded from the calculation of fund earnings for Division 296.
"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 stated.
"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."
According to the submission, the draft law would disadvantage superannuation funds holding investments that produce franked dividends, even in cases where concessional tax settings mean those dividends ultimately face little or no tax.
"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 said.
"This creates artificial incentives that could push trustees away from Australian equities, potentially harming both retirement outcomes and capital markets more broadly."
CPA Australia's submission argues that franking credits and comparable tax offsets should be included in a fund's net income to reflect their actual economic benefit, instead of being left out of the earnings calculation under the proposed Division 296 rules.
The document provides a detailed example showing how the current drafting can lead to higher calculated "earnings" for franked dividends than for unfranked dividends, even when the cash dividend amount is identical.
"This isn't about gaining an advantage," Webb said. "It is about fair and consistent taxation that reflects real income, avoids unintended consequences and maintains confidence in Australia's retirement income system."
CPA Australia has called on the government to revise the legislation so that franking credits and similar offsets are appropriately recognized in determining superannuation fund earnings.
"Given the complexity and long-term impacts of these reforms, it is essential the final legislation gets the fundamentals right," Webb added.