Bill's spend, spend & spend

It is completely unfair because the company tax payment is effectively a payment on behalf of the shareholder. Remember, Imputation is about creating a single taxing regime, and doing the taxing in the hands of the shareholder. If the company has paid tax on behalf of a shareholder who is on a zero MTR, that payment should duly be returned to the shareholder.

 

Dividends - prior to 2000 - were traditionally paid on the net (after tax) profit.

 

Companies are owned by thousands of individual shareholders. Under dividend imputation, the profits are taxed in the hands of the shareholders at their respective MTRs. Some will pay 0%, some will 45%, and every variation in between.

 

Perfect example.

 

An employee who earns $37k pays about $4k in tax.

An investor who receives $37k in dividends will be taxed about $11k.

How is that fair?

And before you say the investor didn't pay $11k tax...why is the franking credit counted as taxable income in his/her tax return?

 

Shares in the hands of individuals, the most they would be impacted by not refunding franking credit excess would be upto approx 8k. Shares in Super could be impacted by a lot lot lot more.

 

Another good example.

 

You mean their TAXABLE INCOME. Not their INCOME . Having a TAXABLE INCOME of $5000 doesn't mean they have an INCOME of $5000. They may have generated 100K salary and offset 95K of deductions against it , so I think it's important to distinguish between the INCOME and TAXABLE INCOME. This is why the argument has been so confusing for many.

In the example you have used, they pay no tax on 5K of income, as its below the tax free threshold of $18,200. Now, for the purpose of the debate I am going to assume that you agree that someone has to pay tax at some time, somewhere along the line so that we can provide basic services like health, education etc....? And that somebody has got to be either companies or individuals. In this case, if the individual has a taxable income below $18,200 and is no longer paying tax in this "bracket" so has no income to offset the franking credits against, should we hand them back the tax the company has paid as well?

If the individual has paid tax - then sure, I think it's absolutely appropriate to provide a tax offset so that they don't pay the company tax again.... but when we have a situation where we are collecting no tax from either the company or from the taxpayer , because we are refunding surplus tax credits ( fancy speak for handing back the company tax we have collected) to investors who have no taxable income to offset , even Blind Freddy should conclude that will send the place broke within a couple of decades. It's already crept from a few hundred million at implementation to over 6 Billion....

I understand that people may be peeved about having the goalposts moved. After all, they havent done anything illegal. But they've become rich (or richer) on the back of these sorts of policy largesse and they've had a pretty damn good run for a pretty damn long time....... but if I'm being brutally honest I think its just one of those things where the need to do it outweighs the wants of those who disagree. We cant afford it anymore. For me, paying for future health care, education and other basic services takes precedence over any hurt feelings. Sorry.

We can have $6Billion in lost company revenue going OUT to people already enjoying tax free incomes...or we can have it IN the system paying for essential services. But we cant have both. And it will be $10 Billion soon enough. Then $20 Billion.... so I know - and I think any reasonable person knows deep down.... its going to be closed down one way or another by one Govt or another ... if not now, sometime down the road. So rather than complaining, I think people should applaud Shorten and Bowen for having the you know what to recognise it and put it out there as policy, way way way before the election. We always complain about politicians lacking vision and failing to lead. I think their courage on this warrants some acknowledgement .

I don't agree that's what they are saying at all. They are saying that you can offset deductions against your GROSS INCOME - in this case its franking credits we are talking about - to the point where your TAXABLE INCOME becomes ZERO. That's $18,200. Or ZERO for SMSF pensioners or Govt pensioners

So if you are paid a gross income of 50K and you have 50K of franking credits because the company has already paid that 50K in company tax, you get to reduce your taxable income by 31.8K to 18.2K , and beyond that the Govt holds the 30% tax which the company has already paid for the other 18.2K. So the company has paid 50K in tax. You have NOT paid any additional tax on the 31.8K of tax that they have already collected from the company. You pay NO tax on your income. The company pays tax on 30%

Under current arrangements if you earned 50K and get 50K in franking credits you can reduce your taxable income below 18.2K, so that you pay ZERO tax on your 50K, but then you also get the balance refunded. So we get ZERO company tax and ZERO income tax. It's DUMB policy. Great for individuals. Dumb for the country. We are the only country offering policy where there is potential for zero tax to be collected from companies and taxpayers . I'm all for people being able to minimise their income to a tax free level of ZERO , but why are we also paying them back the company tax where they have no taxable income to offset it against? Who will pay for the health care and pensions for those "pensioners" .... or the education of their grandchildren. It's crazy dumb.

Anyway. It will fill pages of forums and newspaper columns for the next 8-10 weeks.... I hopefully its a respectful debate . For mine, I just hope people can get their facts at least kinda right and at the very least, try and distinguish between income and taxable income. Like just about any bill paying adult will have experienced once or more in life - sometimes we have to give some things up because we cant afford them any more.

 

[QUOTE="euro73, post: 672382, member: 241

If the individual has paid tax - then sure, I think it's absolutely appropriate to provide a tax offset so that they don't pay the company tax again.... but when we have a situation where we are collecting no tax from either the company or from the taxpayer , because we are refunding surplus tax credits ( fancy speak for handing back the company tax we have collected) to investors who have no taxable income to offset , even Blind Freddy should conclude that will send the place broke within....
.[/QUOTE]

I respectively disagree with this point. Companies have a mix of shareholders, all with different MTRs. The current imputatuon system taxes profits in the hands of the shareholder (the owner). If an individual at a zero MTR, they should absolutely pay no tax on profits, just like they pay no tax on other income (or should I say taxable income). The tax paid by the company is effectively a prepayment on behalf of the shareholder (we tax once in the hands of the shareholder) so it absolutely should be returned to shareholders (through the imputation credit) including to those with zero MTRs.

 

I am not sure I understand this calculation. If the individual gets $50k in franking credits, they would have received ~$116k in cash dividends as well having $50k in inputed income, assuming the company is paying 30% tax and is paying fully franked dividends.

 

I remembered vaguely when refund of FC was introduced by Peter Costello. At that time someone wrote in the newspaper that it wont be affordable in the future when the mining boom no longer there

What else can we sell?

 

you can have your franking credits if the pension and super get taxed in retirement.

 

Bingo

 

I said nothing remotely resembling that.

 

They aren’t bearing any additional burden . They will pay no extra tax. They just wont get the company tax back as a freebie anymore . Not getting free money is not the same as paying extra tax. They still pay zero tax. That’s where your argument - and everyone’s argument on this subject - falls down.

If we accept that what you consider to be fair , is in fact fair , then why don’t we do the same with other tax offsets? Do you get 30% of any surplus negative gearing back with each years tax return ? By that I mean / if you earn 100K and have 100k of deductions , reducing your taxable income below $18,200 - should you get 30% of that 18.2 k back as a refund? You have no tax liability on that 18.2 so should you be able to claim forfeited offsets / deductions as a cash refund ?

I don’t care whether someone earns 30k or 100k - if they reduce their taxable income to zero they are paying no tax - so why should the company tax be refunded to them?

Sensible , fair and sustainable policy that doesn’t bankrupt us , should seek to avoid double taxation, Not create zero taxation .

We can go around and around on this , but the current system goes beyond avoiding double taxation . It results in a net loss of tax revenues . Labor is seeking only to return it to where it was before Costello and Howard pork barrelled it . It’s what every one of the 20 odd other nations with imputation polices do. Not one other nation allows this pork barrelling. I agree with the proposal to amend it . I think it’s mature and responsible policy If you don’t, we will just have to agree to disagree .

 

Sorry, I don't understand your example.

Franking credits are not a deduction, they are a credit against tax payable.

If a $70k fully franked dividend is received, it comes with a $30k franking credit. They are added together tp equal a taxable income of $100k.

Assuming no other income or deductions, if received by an individual, their taxable income is $100k at marginal tax rates tax payable is approx $26.5k, a credit of $30k for franking means $3.5k is refunded to individual. If received by a smsf in pension mode where 0% tax applies the full $30k is refunded.

Companies are ownership structures for businesses, the profits should flow through and be taxed in the hands of the owners.

This absolutely means labour are applying a MINIMUM 30% tax to dividends and they also intend to do it to family trust distributions but not any other income sources.