Franking credits - gone?

I’m in a similar boat. I have always eeered to the left but as I age I find myself moving more to he right. I read a quote once ‘If you’re not a socialist by 20 you have no heart, if you’re still a socialist by 40 you have no head’. I’m on the wrong side of thirty and pretty confident my socialist twenties are well and truly over. Don’t get me wrong I’m definitely not a fan of neo liberalism, but Bill is way out of tune.


The NDIS is a good policy in theory and terrible policy in practice. Bill just playing the socialist card to the poor and middle class. All politicians do what they need to do in order to get elected, as long as they are not effected financially. Bill is no different. And either are most of the labour candidates I know.

 

I have a couple of friends who work in this area and they agree - it is so inflexible and locked into what some public servant thinks you should spend it on. Getting it redirected into what you need (or can actually access, if you are not in a metropolitan area) is a battle with bureaucracy.

 

Yep the bureaucracy surrounding the initiative and the distribution of funds is fundamentally flawed. Disappointing!

 

Often repeated example


Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this;
The first four men (the poorest) would pay nothing.
The fifth would pay $1
The sixth would pay $3
The seventh would pay $7
The eighth would pay $12
The ninth would pay $18
The tenth man (the richest) would pay $59.
So, that’s what they decided to do......................


The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected.
They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his fair share? They realised that $20 divided by six is $3.33.
But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free.
But, once outside the bar, the men began to compare their savings. “I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man, “but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and berate him.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

 

Yep. That’s fine. Problem is wage growth for the poor and middle class isn’t in line with the cost of essential living items and has been stagnant for 15 years. And yep that’s free market economics but historically it doesn’t end well. Could the policy not just introduce a tax break for the lower to middle income earners so they take home a measly $500 extra per year rather than a blanket tax break. And if the rich decide to head overseas, then I’m sure the Government can lower the company tax rates, incentivising them to return home and take advantage of their extra income received within their trusts.

And don’t get me wrong I’m not about taxing the **** out of the rich, but I do think mild intervention is needed to maintain some level of equality and fairness.

 

Here’s an interesting comment I found elsewhere:

 

Interesting comments / strategies from others:

 

Fantastic example @Pier1. The tenth man did not drink and still paid taxes right? Would love to hear how he drinks beer and also dont pay taxes

 

That’s what we do. Tax free Super pension and franked dividends outside Super between a couple will get you all the beer you’ll ever need for many lifetimes. And in our case we mostly home brew so don’t even pay tax on the beer itself.

 

Would you prepare to share your recipe?

 

The wife does the brewing and has gotten excellent at it over the years. As for sharing recipes well yes, but then we’d have to kill you.

 

Meant to post this in an earlier entry:

 

Another possibility for those below the tax free threshhold is to sell the share the day before the dividend is paid and buy back the next day.

 

Looks like there are so many strategies to deal with ALP’s franking credit changes.

They will soon realise it and might not even pursue it considering LNP might reverse it once they get back into power.

The July by-elections will give a good hint on which party’s policies are popular with the voters.

Cheers
Oracle.

 

Also should it ever happen expect more higher yielding products like this to appear. Real assets typically listed property and infrastructure etc which use a trust structure with minimal franking:

https://www.betashares.com.au/files/factsheets/RINC-Factsheet.pdf

The ETF feeds into the highly rated unlisted fund that’s been around since 2010 with around $600 Mil FUM:

https://www.leggmason.com/content/d...file/product-profile-lm-mc-real-income-au.pdf

 

Hmmm I wonder if these types of discussions might be likely to give them ammunition to close these potential loopholes if they were to get it through.

 

Apologies if this has been posted previously. I've just received an email from WAMgt which includes a section about petitioning the govt to keep the franking system - Maintain the current dividend imputation system — Wilson Asset Management

Plato also has a petition going - Petition - Plato Investment Management

Posting should others be interested in signing, unsure when the petitions close.

 

Have now signed both, thanks

 

The 1.6M transfer cap doing its job and bringing in the tax revenue.


Chart from what I think is a good article on Cuffelinks that further discusses the implications of Labor's proposed franking credit legislation.

SMSFs hit by loss of tax-free status and franking refunds - Cuffelinks

 

"All governments need to remember the sole purpose of superannuation is to give people financial independence in retirement. If changes need to the be made, then it should only be after long and considered debate outside the budget cycle."

In reality governments are like locusts moving from crop to crop (replace crop with money pile) looking to feed. Labour likes espousing its altruistic policies - "the Robin Hood of the 21st century": tax big business and the "wealthy" give more to the "unfortunate". Established older societies don't have the dole, the pension, or other handouts. People must work to survive. The worst thing for a person's (and therefore society's) development is giving them everything. Our governments are breeding a society of the self-entitled. This policy illustrates the poor strategy being implemented for the long-term survival of our society.

Hard work needs to be rewarded not punished.