Hard to believe Dick Smith Doesn’t get “Franking Credits”

https://www.smh.com.au/politics/fed...edit-refunds-in-one-year-20190716-p527p1.html

How does a once great man get so confused between franking credits and refunds. It’s obvious he has stashed $15-20million in a super fund, which is well above the cap of $1.6million.

After meeting him at a charity function and hear him talk about the failure of religion to do the work of charities, I was a fan.
Many years later I heard his public views on population control in Australia and how he associates with Pauline Hanson’s views and lost respect.
Now his naivety on the tax system and franked dividends makes me feel he has lost his marbles.

 

When the gent made a number of comments about population contol I have been tempted to contact and suggest he lead by example and take one for the team. I resisted that temptation.

And I reckon he'd know about refund of excess franking credits. He has now got a headlne in the media.

 

it is possible to have more than $1.6m in an SMSF and not breach the cap. The $1.6m is a transfer balance cap. So you can't transfer more than $1.6m into pension phase. But let's say you had $1.5m transferred into pension phase and you were able to generate 20-30% per annum. that balance would accrue fairly quickly over a 10 year period to around $4m (including the compulsory drawdowns) and you wouldn't breach the cap as earnings within the pension phase are not subject to the transfer balance cap.

Many people think you can't have more than one member with $1.6m in super. Some people even think an SMSF can't have more than $1.6m in total. That isn't true. It's $1.6m per member so a total of $3.2m for 2 members TRANSFERRED to pension phase. Then add in yearly earnings which aren't subject to the cap and that smsf can grow to be quite healthy.

 

Changes made in 2001 were a vote buying exercise. The intent of dividend imputation is to stop double taxation. If there is no tax to offset for the shareholder then refunding the tax as a credit is essentially just reducing company tax revenues yeah?

When it was introduced it cost the budget 500m its now out to 5.6b and forecast to 8b in the near future. How sustainable does this sound as a policy?

 

What was the change to NET company tax revenue to the budget over the same time?

 

Cant find anything that gets into specifics on corporate tax revenues from 01. The ATO have started doing a corporate tax transparency report but i think thats fairly recent.

Id say the net affect would be the amounts above. Same amounts have been spoken about as the cost of reversing the excess franking credit refund.

Do you have some info you can share?

 

So you’re saying that if Im rich and get a million dollars in franked dividends, it’s OK to use the imputations to increase my income and reduce my tax.
But if my homeless parents, who sold their farm and invested in shares and earn about $20 k between them in divs, they should not receive the same level of imputation benefits as me. (Fictitious story to show a situation)

 

Yes. Because the intent is to stop double taxation which it does.

Profits generated by the company should be taxed minimum at the company tax rate.

The imputations still work the same whether your a millionaire or a pensioner. But if the millionaire is also paying tax at over the 30% rate then the imputation credits are used correctly to avoid double taxation on that income.

 

I didn't, but found this ABC article: 8 charts that illustrate our growing tax problem

Seems corporate tax grew from (approx) $55bn in 2001 to $72bn in 2017.
If you then deduct the excess FC refunds from each of those numbers, seems the net tax is still up from ~$54bn to ~$66bn? Might not be a valid methodology though ...
2000 was when GST came in, so as the tax burden shifted towards individuals, maybe the franking credit 'giveaway' was actually a compensatory mechanism?

 

Who was buying the votes Liberal or Labor

 

Dick is one of those bloke that peak early, the second half is a big let down.... a few loose in the top paddock with lashings of narcissism. A winning combo!

 

Maybe not enough of the yeast extract.

Anyways ppls can only look on in envy at a $500k refund for the super fund. With the cap of $16M (although you can go over it) I highly doubt such numbers will be seen again.

 

Sure, take politics out of it. It was introduced with comments around making the imputation system fairer with no change to revenue. Since then it has grown to be a nearly 6 billion dollar cost.

The imputation was intended as a tax offset. And acts as a tax offset, until you refund credits where people drop below the 30% tax rate.

Superannuation was fairly young at this point too at the issue will continue to get bigger as more people with larger super balances retire. I think it will be revisted in future because it doesnt seem to be a sustainable policy.

 

Why bring it up now as an issue?

 

Overdose on these maybe?

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Dick has probably worked hard all his life and its good to see the money go to a good cause.
He might even need the money for a new plane.

 

Labor lost the election, so this is post election loss marketing, otherwise known as propaganda because the Labor policy was about cancelling excess franking credits for some people* and the Dick story is not about excess franking credits.

* Incidentally, cancelling excess franking credits for some people but not others is called equity, where everyone is equal but some people are more "equal" than others. For example, smsfs would have had their excess franking credits cancelled but industry super funds would not. This has nothing to do with the fact that unions control many industry super funds.

 

You could spend time trying to convince someone that Labors policy was inequitable and would have undermined the progressivity of the tax system. Instead let's just remind everyone that the excess franking credits policy was a major reform when it was introduced. The comments from Labor at the time are true and they remain true to this day.

From Hansard

The then Shadow Treasurer, the Hon Simon Crean, MP, stated:

Although imputation credits can be used to reduce an individual's or a superannuation fund's income tax liability to nil, excess credits were of no value to taxpayers. This bill proposes to refund to taxpayers any excess imputation of credits that may be left after offsetting the credits against their income tax liability.

The classic example of such a situation is a low-income person who earns a little investment income—for example, a full rate age pensioner. They face no income tax liability on their income and therefore cannot obtain the benefit of the excess franking credits attached to the small amount of dividend income they receive.

Under this proposal, they will obtain a refund of their income tax from the Taxation Office, representing the excess imputation credits. Labor included this proposal in our taxation policy prior to the last election.

Therefore, we have no difficulty supporting the proposal because it is our policy. It builds on the major reform accomplished by Labor almost 15 years ago and it improves the current taxation situation faced by low income investors, especially retired Australians.

 

Pro Tip. Don't like fully franked dividends. Simplez buy shares that only pay unfranked ones.

 

Dick has added his 2c worth to the SMH Letters to the Editor at

https://www.smh.com.au/national/nsw/private-certification-fails-home-buyers-20190719-p528ve.html

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