Franking credits - gone?

My understanding is that also affects those on full or part pensions - so anyone who has shares on retirement, even if it's a little bundle of $10,000 worth.

So, affects everyone from $0 - $1.7mil

 

Paul Keating backs Labor's plan to axe cash refunds for wealthy investors

 

Yes the dividend has been taxed at 30% but the company paid all of it. It's misleading to claim the shareholder has paid it because they are 'part owner". Receiving a franked dividend is still much better than other taxable income for the individual.

 

They need to put the polies super in the same boat as us and not on gold plate defined benefits with indexation

Compay do get tax full amount on their earning, the percentage they paid out to the shareholder is irrelevant if they made a profit for 100m they pay tax on 100m, they can pay 30m in dividend and it makes no diff
but what they have is they build up franking credits which they can then unlock later for their shareholders via deal of special dividend or capital return

 

No it is not when you own shares in a company you are effectively part owner of the business it just it is a large corporation with many shareholders and publicly trades

If I own 15% of the shares in the company I can tell you I can have a lot of influence as an owner, I can get CEO and Chairman sack/appointed with a few people behind me

it is no different from you go 50% / 50% with your brothers in a local cafe

 

Basically this.

What I’m trying to say is that I don’t think the current imputation system is the only issue at play, I think the bigger issue is around pension income from assets are tax free (this change was implemented in 2006 I believe, after the introduction of getting a refund on imputation credits if you are below the marginal tax rate).

 

Course he does. Did you notice the tricky language of the media statement?

"The opposition leader said ending cash refunds in the dividend imputation system was about making the tax system more equitable as well as creating fiscal room for a tax cut for working people – with the measure saving the budget more than $11bn in two years, and $59bn over the medium term."​

Dangling the carrot without committing to tax cuts for "working families". The changes to the dividend imputation system will save $59bn over the medium term but how much will these alleged tax cuts cost? Nothing if they are not implemented I guess.

But then, Labor has form on promising tax cuts then not delivering:

"To demonstrate strength of intent, Keating promised two rounds of income tax cuts, legislating them and describing them as "L-A-W law". However, the tax cut law was repealed following the election, with the government instead announcing the money would be put into superannuation."​

Keating Government - Wikipedia

Scumbag.

 

Were you quoting PJK?

 

Yes. I was using his own word to describe him. Oh, the delicious irony.

 

But they are a part owner. The imputation credit is held by the ATO which was forwarded on by the company on behalf of the individual.

My previous example was poor in the sense that it didn’t view the total assessable correctly.

Let’s look at it this way instead. We take total dividend paid out of $25,900 PLUS the 30% tax paid in the form of imputation credits (with the imputation credits currently witheld by the ATO) as the total assessable income. This brings the total assessable income to $37,000 which will place the individual into the 20% tax bracket. Under Shorten, this individual will only get $25,900 as he has said that there will be no refund of imputation credits. While somebody who has a total assessable income of $37,000 from other income sources will end up with $29,600.

 

Viewpoints: could Labor's tax changes make the system fairer or hurt investors?

 

Shh, dont give him any ideas. Bet he hasn't thought of everyone's Super in accumulation, either.

 

Yeah - but Paul Keating also reckons Trump is the best president the USA has ever had ... he's always been controversial sensationally purely for a "look at me" need

 

Another view

Excuse the language...

Junk Explained: Here’s How Rich Boomers Are Using An Extremely Sneaky Scheme To Steal Your Money

Guess what, everyone? Australian politics has finally moved past rolling citizenship drama and parliamentary sex and entitlements scandals to get back to some good ol’ fashioned, meaty policy debates. At least for now.

We’re pivoting to economic policy, baby. But please, keep reading.

This week Labor leader Bill Shorten announced that, if Labor were to win the next federal election, he would scrap cash refunds for franking credits associated with the dividend imputation scheme.

What the f***does that mean? Yeah, fair question. The policy itself sounds extremely dry and boring… because it is. But it will also raise nearly $12 billion in revenue from some of the wealthiest Australians, including wealthy retirees. That’s money that could be spent on education, health, affordable housing, and all sorts of other good things.

 

It's a good article that explains the issues well with some glaring omissions.

"According to Shorten that reform will raise nearly $12 billion over the next four years from “a very small number of shareholders”."
​

Yeah, I don't think so. That money will come from genuine low income earners, every super fund and from the filthy rich with SMSFs.

The issue is that the target is the SMSFs and they have options. For example, they could dump all their Australian dividend paying shares and buy international shares or Australian non-dividend paying shares or Australian non-franked shared. If they do this en masse, the 12 billion won't be 12 billion and none of it will come from the filthy rich targets of this policy change

 

Yep and he government also has options - without touching the soft target of super - would like to see how much the perks for retired pollies are costing as a start.

And yes again - it affects ALL superannuation, not just SMSF or the wealthy - and anyone owing shares outside superannuation as well

 

Apparently, the imputation credit refund can be claimed also by institutions and large pension funds. Perhaps, Shorten's example of a $2.4m tax refund is not to an individual but to trust and other large investments. To try and stop institutions and other large refunds, Shorten is basically targeting all self funded retirees and catch many ordinary Australians who dare to aspire to live a comfortable lifestyle without Government welfare.

Nowadays, comfortable self funded retirees basically need to be millionaires to create an annuity that can produce an income of an average worker.

 

I think their policies have some merit.

As they are targeting their tax-relief at productive parts of the economy.

* Negative Gearing is grandfathered, but going forward only applies to new supply.
* Accelerated deduction policy. You have to productively invest in your business to get the benefit. Reduced Tax rates doesn't guarantee everyone will go out and invest/hire more people.
* Promised reduction in income tax rates benefiting all workers.
* Tax Refunds generated by excess franking credits (non workers) will be re-targeted to the above. If you look at the projected increase in costs, you realise it's a scheme that had to be removed/curtailed at some stage.

Also it was said pooled funds likely had the flexibility to get around the affect of these changes for a lot of their members.

 

I understand the target but the net that is being cast is a very big net. This policy change will affect all super funds that received franked dividends, whether they are in accumulation mode or pension mode. So, basically it is a raid on super funds.

 

Maybe in concept but the execution is very clumsy in my opinion.

Not exactly. People with other investment income will still be able to achieve the same tax outcome as negative gearing but it won't be called negative gearing. Most high wealth investors won't be affected by this policy but lower income investors will be worse off.

I haven't heard about these but I hope it's not a repeat of the L.A.W. Law tax cuts:

"To demonstrate strength of intent, Keating promised two rounds of income tax cuts, legislating them and describing them as "L-A-W law". However, the tax cut law was repealed following the election, with the government instead announcing the money would be put into superannuation."​

Ok, but this impacts genuine low income earners*, every SMSF in accumulation mode* and every SMSF in pension mode*. The issue is that a high income earner can receive cash from the government (excess franking credits) and this is a perverse tax outcome. The result of Labor's policy change is a raid on all SMSFs and even some retail funds are going to be impacted in Australia*, which is also a perverse outcome.

Basically, to solve one problem, Shorten in creating a much bigger problem.

* assumes they are receiving franked dividends.

This is actually a good write up on why this policy is not well considered:

Winners and losers from franking credit changes - MacroBusiness