CPA Australia has cautioned that proposed changes to superannuation tax rules could “unfairly” erode Australians’ retirement savings by mismanaging the treatment of franking credits.

In a submission on the exposure draft of the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2025, the professional body argued that the draft provisions fail to reflect the core role of franking credits in the tax system and risk distorting how superannuation funds invest.

The submission was prepared jointly 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, particularly where franking credits are omitted 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 said.

“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 that hold investments producing 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 sets out 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 recognised 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 said.