Letters of the Week

The benefits of holding bank shares, and the curly issue of anti-detriment payments.

Bank shares
I would like to take a contrary view to Alan Kohler's with regard to bank share holdings. I cite the position of a person with $400,000 invested in a mix of, say, three of the four major banks and Telstra. If those shares provide the only taxable income for the individual, the dividends of $28,000 come with $12,000 of franking credits, allowing that person to receive a tax rebate of $6,450. In effect, the individual has received $34,450 in dividends for their $400,000 in shares, giving him or her a net yield of 8.6% or a gross yield of 12.3%. Furthermore, that rebate will be received annually by the individual and as dividends paid increase in the years ahead from those companies, the corresponding yields increase further. One may not be getting much in the way of growth in the companies’ prices in the years ahead, but there is plenty to be satisfied with in comparison to the 6% taxable obtained with a bank deposit.

– C Hall

Anti-detriment payments

There has been practically no coverage of the issue of anti-detriment payments in Eureka Report . This is an area where SMSFs are at a serious disadvantage to larger funds, which pay out the anti-detriment payments. I believe the SMSF industry should lobby the government for equivalent outcomes in this area.

My understanding of accessing anti-detriment payments on the death of a member of an SMSF is that there are three areas of disadvantage:
1) The payment will need to be paid from reserve funds created previously within the SMSF (the members’ account balances will be lower due to the funds being previously directed into reserves, rather than to the member accounts);
2) When transfers are made to members’ accounts from a reserve, such transfers are treated as concessional contributions, with all the potential problems that can entail;
3) For the SMSF itself to benefit from the anti-detriment payment, there will need to be ongoing contributions (and potentially an awful lot of them) which can benefit from the future tax deduction.

– M Fitzpatrick

Editor’s response: Thanks for your letter. If there are any topics that you’d like our contributors to write about please let us know, because in the wide world of investment ideas it’s easy for some issues to fall through the cracks.

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