Australian or International Index in Superannuation

[Murdoch]

Hi all,

If an asset allocation includes index funds split between Australian and International, is it better to have one in superannuation and other in taxable (individual or trust) accounts?
If so, which, and why?

Cheers
Murdoch

[Gremlin]

Someone smarter than me may disagree, but I don't think there's a universally right answer.

We are still more than 10 years short of our super preservation age, but this is what we do.  We are overweight Australian equities in super because of the insane tax treatment of franked dividends within super funds and dividends represent a higher proportion of total returns for Australia than international.  We are overweight International equities in what we hold outside super as they pay less in dividends (and theoretically more in retained earnings) than Australian equities and we don't need the cashflow at the moment (and the higher dividend levels adding to our tax bill).

[Murdoch]

Cheers Gremlin,

The franking credits and usually higher dividends in the Australian index environment does swing both ways.
In superannuation these are taxed at a lower rate (depending on your income), however  in taxable I thought you could use those franking credits to offset you income tax?
Does anyone keep Australian in taxable as a preference over international due to the franking credits?

Murdoch

[Gremlin]

You can, but in my circumstance it leads to more tax overall because the income from divs is marginal and our other income is still relatively high.  Your situation may be different.

For clarity, we do have some Aust Equities outside of super and some International Equities within.

[mjr]

I have both Australian and US index funds in both taxable and my SMSF.

In my taxable accounts, I am heavy on Australian funds - I want income and franking credits and  I don't have to sell shares.

In my SMSF, I went high on US index funds.  This was a more deliberate choice.  This account will be tax-free and US shares provide way more capital gains than Australian ones.  Up until now, this has been working well for me.  Since 2016, my SMSF is up a million dollars and most of these gains are unrealised capital gains and will be tax-free.