In the past few weeks, our politicians have continued to make a lot of noise, but one issue that's simmering quietly in the background is that of franking credits and proposed changes under a Bill Shorten government.

Put simply, a franking credit is a tax credit that can be attached to dividends paid to shareholders. Franking credits are designed to offset the income tax already paid by the underlying share or company, and the intention is for the shareholder to pay their own individual rate of tax on the profits instead. The aim is to prevent double taxation (i.e. paying tax twice on the same income).

The Leader of the Opposition, Bill Shorten, has proposed abolishing franking credit refunds. It is important to note that he is not proposing to abolish franking credits but simply preventing investors from claiming a cash refund from franking credits that they cannot offset against income tax.

An exception to this will be those who the Labor government terms "pensioners," who will still be able to access cash refunds from excess dividend imputation credits. Under the Pensioner Guarantee, every recipient of an Australian Government pension or allowance (including Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance) with individual shareholdings will be protected from the abolition of cash refunds for excess franking credits. Self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes.

The biggest issue with this proposed legislation is for those people who are self-funded in retirement, with significant portfolio investments in Australian shares, who access those shares through a self-managed super fund. The issue is further compounded for those whose fund is in pension mode, where they receive the franking credits refund as cash as there is no taxable income to be offset. By receiving the franking credits as cash in an SMSF, the benefit of the franking credits is more obvious to members. However, even those in an industry and retail super funds will be affected, but the benefits of franking credits are less obvious when they get "washed through" both the accumulation portion and the pension portion of the whole collective fund.

So what is to be done?

Firstly, be aware of what the ALP proposals are and how they would impact you. Secondly, we may see people slightly adjusting their retirement portfolios away from Australian shares in order to be less impacted by these proposed changes. This would be a great shame if people are forced to make investments decisions based on tax implications rather than the merits of the actual investment.

Time will tell, but the outcome of the 2019 election may have more riding on it than people are aware of.