ALP will be taxing your Nana

I have an op-ed in the AFR this morning on the proposed policy to end fulling paying out excess franking credits.

Some 6.1 per cent of taxpayers appear to earn excess franking credits – less than the 8 per cent Labor claims. That could be good or bad for Labor’s expectations as to revenue.

So the next question is, who are these 6.1 per cent?

Women make up 56 per cent of taxpayers earning excess franking credits but only 48 per cent of the sample data.

Of those women, 68 per cent are over 60. Labor wants to tax your Nana.

What do I expect the happen?

What could these women do to “avoid” the tax on their livelihoods?

I expect that many will sell down their share portfolios to qualify for the pension (or for more of the pension) and use the proceeds to renovate their homes.

I doubt that this is the policy intent, but it does suggest Labor will raise a lot less revenue than it imagines, and that the social costs of this policy are higher than they anticipate.

Everyone speaks very highly of Chris Bowen and I’m sure he means well and is a nice guy and all. But there is a track record here. This is the man who brought us FuelWatch, GroceryWatch, and the changes to taxation of employee share schemes – eventually having to admit that there were two instances where rorting had occurred.

Now there is a lot of ‘confusion’ about excess franking credits being refunded. Even from people who know better. Craig Emerson – who has a PhD in taxation from the ANU – wrote this on Tuesday:

Opponents of the no-refunds policy have claimed the removal of cash refunds would tear up the dividend imputation system. They whitewash from history the fact that Keating’s imputation system never allowed for cash refunds; it is a Coalition contrivance that enables well-off retirees with low or zero taxable incomes not just to pay no tax but to receive cheques funded by other taxpayers.

When you receive your tax refund it is not being funded by other taxpayers.  It is the return of money that has been overpaid. When I go to the supermarket and buy $10 worth of goods and pay with a $50 note, the change I receive is not  being paid for by other customers, or the shareholders of the company.

The excess franking credit refund occurs when companies have paid too much tax on behalf of particular shareholders. Australia’s dividend taxation system has the effect of turning company tax payments into a withholding tax. In precisely the same way that PAYG is a withholding tax. If your employers has withheld too much tax, the ATO refunds the difference.

Then there is some confusion at the RMIT-ABC Fact Checking unit. To be fair, I know that they are genuinely ignorant of how the tax system works.  They have investigated this statement:

Will the changes mostly hit low and middle-income earners, with 84 per cent on taxable incomes of less than $37,000? RMIT ABC Fact Check investigates.

A pronouncement of “Misleading” is their expert opinion.

The “Fact-Check’ unit interrogates documents prepared by the Treasury and Parliamentary Budget Office that rely in data from 2014-15 and find:

As can be seen, according to Treasury’s analysis, 86 per cent of the individuals who received refunds had taxable incomes of $37,000 or less.

Okay – so the claim was 86% not 84%. But really? The “Fact-Check” unit then proceeds to question whether taxable income is a meaningful measure. Yet the claim itself is true. They are able to pronounce “Misleading”.

Using the latest ATO data I can report, using my proxy for excess credits, that 90.32% of those being adversely impact by this proposed policy have a taxable income of less than $37,000.

This entry was posted in Economics and economy, Shut it down. Fire them all., Taking out the trash, Taxation. Bookmark the permalink.

54 Responses to ALP will be taxing your Nana

  1. stackja

    ALP policies always have consequences. Intended and otherwise.

  2. Ƶĩppʯ (ȊꞪꞨV)

    Bowen is lying sack of shit, he should be strung up from a tree like all his fabian mates.

  3. John Constantine

    Companies will respond to proposals from Big foreign investors (who didn’t benefit from the franking credit buybacks) to cut back on paying dividends and retain earnings for capital growth.

    Thus requiring a crackdown on capital gains.

    Instead of earnings flowing as dividends to benefit shareholder owners, earnings will clog up within the companies.

    Takeovers and edifices will result, to the profit and pleasure of the corporate Davos Class.

    Comrades.

  4. Tim Neilson

    Craig Emerson – who has a PhD in taxation from the ANU

    Don’t overestimate the intelligence of Legover Man.

  5. Percy Popinjay

    What’s Emma Alberscreechee’s learned opinion on this controversial topic?

  6. duncanm

    “some confusion” – aka, wilful misdirection.

  7. Carbon Emitter

    ALP con explained in simple straight terms. So much for the working man … and woman of course!

  8. The fact check unit must be trained by the same people that trained the Washington Post staff that had to go into a frenzied fact check when Trump said, amongst other things, that he had a bought a pile of burgers a mile high to the White House, to celebrate the Clemson University football team win. The fact checkers calculated that there was no physical way that the burgers could be a ‘mile high’.

    This is journalism?

    https://www.washingtonpost.com/politics/2019/01/15/president-trumps-extravagant-sandwich-celebration-clemson-university/?noredirect=on&utm_term=.c9d3ca5f3c3f

  9. I expect that many will sell down their share portfolios to qualify for the pension (or for more of the pension) and use the proceeds to renovate their homes.

    I doubt that this is the policy intent,

    Wrong.
    As usual, but you are an economist…and academic.
    The intent of every Labor policy is to turn everyone into dependents of the State and fleece you whilst they’re at it.
    Go read a history book for once instead of postulating on how blockchain will mean a greater marginal return for investors in fiscal derivatives of equities seeking demand stimulus of the money supply to vertically integrated markets that are volatile to liquidity of stagflated retained earnings divested in mutual funds.

  10. The BigBlueCat

    Sinc is spot on with his analysis. Dividend imputation is all about recognising the tax on dividends that has already been paid. This will continue to be recognised where there has been other taxable income for the taxpayer and where that income tax has been already collected.

    From Chris Bowen’s website:

    This change only affects a small number of shareholders who have no tax liability and use imputation credits to receive a cash refund.

    While those people will no longer receive a cash refund, they will not be paying additional tax.

    If you’re not getting the refund, you’re paying more tax because you’ll be paying at the company tax rate, not the individual tax rate! Bowen is a liar – they will effectively be paying more tax than before. But this from a party that says a cut to the company tax rate is the same as the government giving money to companies…. weasel words.

    What the ALP is doing is unfairly creating a new class of taxpayer, where tax has been collected by the ATO via the company tax that was paid (at 30%), but for the want of other taxes collected from the shareholder taxpayer. They are saying “here is another class of taxpayer, where they haven’t paid any other income taxes, so we will charge this new class of taxpayer at the company rate on the dividends they have received, rather than at the individual rate (unless the individual rate is higher)”.

    It stinks, because of who it effects (and it isn’t who they said it would). Bowen, Shorten and Co are so blind to this it must call into question their ability to run an entire economy (well, truth be told they aren’t capable of any fiscal or monetary responsibilities).

  11. The Fifth Bike Rider of the Apocalypse

    Everyone speaks very highly of Chris Bowen…

    No they don’t.
    Bowen is a complete dropkick who as Treasurer will make Wayne Swan look like the world’s greatest treasurer.
    Oh, that’s right…

  12. mh

    When you receive your tax refund it is not being funded by other taxpayers. It is the return of money that has been overpaid. When I go to the supermarket and buy $10 worth of goods and pay with a $50 note, the change I receive is not being paid for by other customers, or the shareholders of the company.

    The excess franking credit refund occurs when companies have paid too much tax on behalf of particular shareholders. Australia’s dividend taxation system has the effect of turning company tax payments into a withholding tax. In precisely the same way that PAYG is a withholding tax. If your employers has withheld too much tax, the ATO refunds the difference.

    The above explanation is the part I always question. As Wiki states re Dividend imputation:

    The objective of the dividend imputation system is to eliminate double taxation of company profits, once at the corporate level and again on distribution as dividend to shareholders.

    So if the entity that is the share holder has no tax to pay, whether or not the franking credit has reduced the taxable payable, why return the excess? There is no double taxation occurring.

    This statement

    …companies have paid too much tax on behalf of particular shareholders.

    Really? They are paying 30 percent on their profits, and the dividends distributed to their shareholders.

    I am a rank amateur, and realise I am not arguing the point from any area of expertise, like the good professor.

  13. Tim Neilson

    The fact checkers calculated that there was no physical way that the burgers could be a ‘mile high’.

    This is journalism?

    This is Trump winning again.

    24 hours a day 7 days a week 52 weeks a year of that kind of “fact check” and who will pay attention when they have a genuine criticism of something Trump says? Only “orange man bad” NPC’s.

  14. The Fifth Bike Rider of the Apocalypse

    This is journalism?

    I followed your link Bemused and came across this gem:

    Cutting edge journalism. Pulitzer material! Next, I recommend fact checking “Bezos is a clown.”

  15. Tim Neilson

    The above explanation is the part I always question. As Wiki states re Dividend imputation:

    But Wiki’s reference to “double taxation” isn’t the argument that Sinc was making.

    Suppose you had no income at all but the government charged you $ X in income tax. It may not be “double taxation” but it would still be excessive and unfair taxation.

    The tax system is designed so that anyone can have up to $18,000 a year at a tax rate of zero. If someone’s earning $18,000 via shares, and the company pays $5,400 tax, and the shareholder thus gets only $12,600, the shareholder is being taxed at 30% – in fact you could argue that that’s on top of the prescribed tax rate of zero so there’s “double” tax on top of the prescribed zero rate.

    Really? They are paying 30 percent on their profits, and the dividends distributed to their shareholders.

    Who’s “they”? A company is a legal fiction designed to facilitate collective investment by the shareholders as a association of investors. The very name “company” tells you that. The shareholders are the only people who are in reality bearing that tax.

  16. The BigBlueCat

    So if the entity that is the share holder has no tax to pay, whether or not the franking credit has reduced the taxable payable, why return the excess? There is no double taxation occurring.

    Correct, but the taxpayer will have effectively paid tax at the company rate of taxation on none, some, or all of the full-franked dividend. If the credit is to recognise tax already paid on the income by the company, and that individuals are to be taxed in accordance with the tax scales for individuals, it is indeed proper that the excess is refunded to the individual. That there are other taxpayers that can receive the full excess in relation to their tax liabilities, while others receive some or none is unfair.

    The is fact that some taxpayers have no assessable income, but when considering their fully franked dividends are flexed upward to take into account the tax paid to arrive at their taxable income allows the calculation to consider the difference between company and individual rates of tax. Why should this system be changed? Why should some taxpayers bear a tax liability at a scale that does not apply to them on other forms of income?

  17. The Fifth Bike Rider of the Apocalypse

    When the bible referred to the 4 Riders/Horseman of the Apocalypse, I never for a moment thought that the authors had the Lycra clad in mind.
    Now, I am wiser.

  18. v_maet

    So ABC fact check finds that the number of people under 37k taxable income is actually higher than claimed (86% compared to 84%) and then goes on to say the claim is misleading because superannuation which is not taxed is excluded from taxable income……

    We are literally funding pro labor propaganda

  19. Fred

    Going to be interesting to see what happens. Not just for big business investors, but for small business too. Many small businesses have franking accounts, pay a dividend to the shareholder and receive a refund. No more.

    I also imagine there will be a change of investments for many people to income that is not franked i.e. property or investment trusts

  20. Peter Greagg

    Well, Nana is being advised by me and so she will sell all her Australian shares and buy Vanguard International Share Index Fund (or similar).
    Thus she will avoid the depressed Australian shares performance as a consequence of the Shorten Looting Cartel’s policies, as well as avoiding losing her franking credits. She will pay a small amount of tax but be far better off than if she had stayed in Australian Shares.

  21. Peter Greagg

    Oh, and Barking Mad, don’t comment on things you know nothing about.
    The current situation taxes all profits in the hands of the investor, regardles of whether the investor is an individual, or in a partner ship, or invested via a trust, or a company.

    It is the Liars that want to break this nexus

  22. Peter Greagg

    regardless not regardles
    Damn Skynet

  23. Tim Neilson

    This angel thought that Companies should pay full tax, but imputation means shareholders should not have to pay tax again on the dividend.

    Not exactly. Consider two investors, one having only shares, the other having shares and rental properties, each one’s investments generating a total of about $40,000 income. The first investor gets about $28,000 (because about $12,000 has been withheld at the corporate level), and the second gets about $34,000 (because about $6,000 has been paid at the corporate level).
    This is a bit of a simplification I know, but the tax on $40,000 is about $7835, so if the tax was equally applied to the dividends and the rent, the first investor would pay $7,835 tax on dividends and the second would pay about $3917.50 on dividends and about $3917.50 on rent.
    In fact the first investor is economically funding $12000 tax on dividends.
    The second investor is funding $3915.50 tax on dividends and is able to use approximately $$2082.50 of tax paid at the company level as a means of satisfying most of the tax on the rent.
    So, no, imputation was never about only exempting dividend income from tax at the individual level – it has always contained a component of giving the investor credit for the tax paid at company level as a financial benefit to the investor.

    If you receive the dividend and pay no tax, you have e not paid tax on it.

    So if you’ve got money in the bank, and the banks says “we’ve diverted 30% of that money to our exec’s bonus pool – here’s the remaining 70%”, you’ve got no complaint because you haven’t had to put your hand in your pocket to fund the exec’s? After all, the “company” i.e. the bank was the one that had the money.

    Why should equity investors (shareholders) be treated differently to debt investors (you as a depositor)? It’s their money.

    It hasn’t withheld more than it should for those who pay no tax anyway.

    It has “withheld” 30%. That’s what company tax is – a means of collecting tax on money that belongs to the shareholders before it’s paid to them rather than after – just like PAYG from wages.

  24. Tim Neilson

    I also imagine there will be a change of investments for many people to income that is not franked i.e. property or investment trusts

    Have a look at Singapore companies.

    15% company tax and no withholding tax on dividends.

    So from $100 company profits a zero rate Australian taxpayer gets to keep $85.00.

    Whereas under the ALP policy investing in any company with an Australian business paying 30% Australian tax you get $70.

    The ALP – making it more than 20% more profitable to support Singapore jobs than Australian jobs.

    You know it makes sense.

  25. Tim Neilson

    sort of to conflate the income the shareholder and company receive as one amalgam?

    There’s no conflation. Money paid as dividends is merely a subset of money derived by the company. They are not separate phenomena.

  26. Peter Greagg

    Harken Now
    #2921479, posted on January 30, 2019 at 3:31 pm

    As I said, the company tax system is designed to tax the company profits in the hands of the shareholder at their marginal rates.
    You could abolish all company taxation of Australian companies for Australian investors, and Government revenue would be unchanged.
    If you don’t understand this, then you should go away and educate yourself before commenting further.

  27. Fred

    The giveaway with Labor’s policy on negative gearing and franking credits is they are not reducing taxes anywhere else.

    If they believed the current system is unfair, then they should disallow negative gearing deductions and stop franking credit refunds, then reduce income tax for everyone by the same amount.

    What they have done is simply look around for ways to collect more revenue. What happens when the Commonwealth runs out of money next time? Maybe a tax on bank deposits i.e. Cyprus?

    France has some of the highest taxes in the world on income, consumption and inheritance and yet they haven’t had a budget surplus in over 40 years. There’s a lesson there.

  28. Russell

    The worst part about the ABC/RMIT “misleading” conclusion is that their analysis contains some statements that are clearly misleading themselves. It’s hard to get good help. Take this example:

    “First, taxable income does not include the largest source of income for many retirees: superannuation. Superannuation income (for fund balances of up to $1.6 million) is generally not subject to tax in the retirement phase, and is therefore excluded from taxable income.”

    I first wondered if this mention of super income meant the earnings on super investment or the regular payments which must be at least about 4-7% of the super balance. For an average super balance of, say, $300,000, earnings are about $15,000 pa (and not anywhere near this amount this particular year). Now that is way less than their $37,000 threshold.

    Then I read on and found they reference Grattan Institute stuff that “… when superannuation withdrawals are pared out of income data for retirees …”. And “And draw-downs of savings other than superannuation to fund retirement — whether shares, bank deposits or investment property — are not declared as income”. These statements clearly imply that they think regular super withdrawal payments should be thought of as “income” for taxation purposes.

    While many super funds call their pension accounts an “income” account, it is a terminology used for their members who are not very savvy about money. An income stream appears like income to most people but it is really VERY different from earning new income in a productive job or from a productive asset that is the common source for income taxation under the laws of the land.

    While the superannuation contributions have been concessionally treated during their deposit, these assets have been compulsory collected and banked over the member’s career. They already belong to the member like money in the bank – they just can’t be withdrawn until they are old. As such, any super withdrawal transaction (when you are old) is not an income that is earnt in some productive endeavour but simply drawing money out of the member’s bank. By extension, does this imply that ABC/RMIT/Grattan think we should treat any withdrawal of money from any savings bank as “taxable income”?

    Talk about the blind leading the blind. A misleading conclusion coming from serial misleading organisations. This damages all credibility of ABC analysis and exposes them as the Labor propaganda mouthpiece that they have become.

  29. Jock

    Agree with Sincs piece entirely. Whilst not hasving a PhD in Taxation like Emmerson, I would think the biggest issue is the discrimination caused by the policy. A high flier on millions a year gets to use all of their franking but a pensioner with an SMSF gets lugged the full 30% company tax rate. Its just theft.

    I should add that Treasury would love to get rid of imputation. They would just love to double tax.

  30. Jock

    I have wondered whether the policy is a sly plot to force SMSF and others to sell their AUD share portfolios cheaply so the Union backed industry funds (who are NOT impacted) and the Chinese can buy them up at a good price. Must be some reason to pay Carr and Dastaryi??

  31. The BigBlueCat

    Tim, there’s another anomaly . Let’s say you have 2 lots of dividends – one fully franked, the unfranked. Tax is assessable on the unfranked dividend but the franking credit can be applied to offset it. It reduces the tax liability. The franking credit is a real benefit to the taxpayer, who still might not pay any tax but receive the benefit (rightfully so). See how Bowen’s change create multiple classes of taxpayer at the individual level?

    Forget the issue of “tax paid” … it is about tax liability on assessable income whether tax has been paid/withheld or not.

  32. mh

    Who’s “they”? A company is a legal fiction designed to facilitate collective investment by the shareholders as a association of investors. The very name “company” tells you that. The shareholders are the only people who are in reality bearing that tax.

    A legal fiction, Tim? I cannot see that standing up in court.

    For example, if a company does not pass on the withholding from its employees wages to the ATO then Director Penalties start being issued. A director cannot tell the ATO to go see the shareholders, the law recognises a company as an entity in it’s own right and the legislation is written accordingly.

  33. Tim Neilson

    A legal fiction, Tim? I cannot see that standing up in court.

    Do you understand what “legal fiction” means?

    It means a fiction which is treated as if it were real for certain legal purposes. So yes, duh, a Court will apply a law which treats a company as an entity by …. ta dah!… treating a company as an entity for the purposes of that law.

    But there are limits on how far even that can be applied.

    To take your example, the Court doesn’t issue a warrant for the arrest of the company.

    It issues orders against the directors.

    They have been hired by the shareholders (via the legal fiction of being retained as officers of the “company”) to do certain things and if they break the law while they’re doing them they can be sanctioned.

    Same as if you hire a courier to take a parcel somewhere and the courier breaks the speed limit it’s the courier who gets fined, not you.

    So of course they don’t go against the shareholders in that case.

    But note – the orders are made against real people (i.e. the directors). That’s precisely because the legal fiction of the existence of a company doesn’t magically require that the “company” be held responsible – in your example holding “the company” responsible would be to punish the shareholders who weren’t involved rather than the directors who were.

    The whole purpose of company law is to enable real people to pool some of their money to be invested jointly in a convenient way, with certain legal fictions being prescribed to encourage that kind of passive investment in active businesses.

    That doesn’t magically change the reality that it’s the shareholders’ money that’s being invested.

  34. Tim Neilson

    The BigBlueCat
    #2921512, posted on January 30, 2019 at 4:25 pm

    Yes.

    Companies will have a big incentive to minimise tax so that investors can get $100 of tax sheltered profits rather than $70 of taxed profits, so that the investors can do the franking mix and match that you describe.

    The ALP – incentivising corporate tax avoidance.

    You know it makes sense.

  35. Dr Fred Lenin

    This figures Bastards dont have Nanas, no bugger wanted them ,just like this elitist shower .

  36. Alex Davidson

    Taxation is basically a system of plundering those who create wealth according to more or less arbitrary rules made up by the political class. They then divvy up the loot among themselves and sufficient beneficiaries to keep themselves in power. Such a system can never be fair or moral, since it is based upon the use of force to achieve ends, so it is a waste of time debating the details of how the plunder should occur.

    Instead of letting the political class set the agenda, every time they raise any issue relating to taxation, we should respond by questioning the morality of a system that allows one group in society to engage in and benefit from theft, while prohibiting it for everyone else.

  37. Nighthawk the Elder

    Remind me and I admit to being fuzzy on the details. Didn’t Bowen also bring in changes to FBT reporting that sent the entire novated lease car industry into a spin? Trying to remember, something along the lines of doing away the statutory method for determining FBT and everyone had to adopt the log book method, clearly noting the proportion of work Vs personal journeys.

    From memory, numerous orders for new cars through leasing were suspended or cancelled as the punters tried to figure out what was going on; leasing companies started to lay off staff and manufacturers and suppliers started to panic about the sudden drop in new car sales. I also know a hell of a lot of bruvvers were far from happy as a lot of EBAs had leasing benefits built in, in lieu of higher wage rises.

    I reckon it was a significant (but probably not the final) nail in the coffin for Australian car manufacturing. For all his faults, at least big Joe turned this around, but I reckon the damage was already done.

    I also reckon Bowen is up for Round 2 on this.

  38. Franking credits are no different than PAYG. An adjustment is paid or refunded after a tax assessment. It’s really that simple.

  39. Squirrel

    “I expect that many will sell down their share portfolios to qualify for the pension (or for more of the pension) and use the proceeds to renovate their homes.”

    Highly likely, in light of Labor’s “Pensioner Guarantee”

    https://www.afr.com/news/politics/labor-spares-300000-pensioners-in-33b-policy-backdown-20180326-h0xy8t

    a policy which also presumably creates the possibility of part-pensioners getting franking credit refunds, even though they are better off than some self-funded retirees who would miss out on the refund.

  40. Davo

    Guys, I don’t think any of your analysis matters to the ALP. I think all they care about is the confluence that effectively pushes people into Industry super.

    You know the ones that are only to benefit members; of course while they provide jobs for union stooges, charge kids for default insurance they have asked not to have in the paperwork when they join (and which is owned by the unions)…and still have members money spare to sponsor sports events. How that is solely for the benefit of members is beyond me

    Unbelievable

  41. Zulu Kilo Two Alpha

    Franking credits are no different than PAYG. An adjustment is paid or refunded after a tax assessment. It’s really that simple.

    You’d be surprised how many of the morons commenting on the issue, in the MSM are totally unable to grasp that simple concept.

  42. mh

    Thanks Tim for explaining legal fiction.

    Btw, I think Chris Bowen stated at some time that there is only one other country that refunds excess dividend imputations. If that is true then it would be interesting to see why people think that is the case.

  43. mh

    Ok, Bowen states:

    Australia is the only country in the world which provides a refund for corporate tax paid to shareholders if they don’t pay income tax.

  44. DaveR

    Poor old Craig Emerson. So locked into the socialist vortex in his irrelevant later life, along with fellow traveler and equally irrelevant Ross Garnaut, he just cant understand that the capitalist world is based on opportunities and what people make of them.

    Always in the public service and government, except for a brief foray, he is sadly a case in point of a person who has never had to go out and fight to raise capital to build a business that employs a lot of people, pays their salaries and pays tax, and builds people’s lives and the nation. Its this bit of the western capitalist world, and the majority of people in it who do this, that he doesnt get.

    Craig, retire to the outskirts of Moscow and live your days out there discussing economic theory (with Garnaut), away from this country where most people want to work hard to make something of their lives here. By the way, take Wayne Swan with you.

  45. Texas Jack

    Dunno how Bowen continues to be given a free pass for allowing ASIO-profiled terrorist live in the Adelaide Hills while he was Minister for Immigration? Then there’s his performance during the last Rudd challenge. The media have simply ignored his repeated stupidity while he has the biggest tickets on himself.

  46. Tim Neilson

    mh sorry for the discourtesy before.

    Re Bowen’s comment

    Australia is the only country in the world which provides a refund for corporate tax paid to shareholders if they don’t pay income tax.

    Maybe so – I don’t know – but that doesn’t mean we shouldn’t do it.

    Nor does it mean we’re really out of step.

    Some tax systems give [or at least used to – I haven’t checked for years] a company a tax deduction for dividends paid.

    Economically that’s identical to a refund of franking credits.

    In our system a company earns $100, pays $30 tax and gives $70 to the shareholder – then the shareholder notionally declares $100 income but is credited with $30 of tax already paid – so a zero rate taxpayer gets back the $30 and has $100.

    In the deduction system the company earns $100 and pays it to the shareholder, and the company pays no tax because of the deduction. A zero rate taxpayer gets and keeps $100.

    Identical outcomes.

    Fred at 3.42pm was right of course. It’s a pure revenue grab.

  47. mh

    Tim, I was wondering…
    Our dividend imputation system was introduced in 1987, but franking credits only became refundable in 2000. Presumably Treasurer Peter Costello championed the change, but what were the reasons given for the change? Was there anything along the lines of the arguments here that it is simply returning the tax already paid by the shareholder? Or to quote Sinclair, ‘It is the return of money that has been overpaid.’ I have a feeling it was more along the lines that those who had excess franking credits were unable to benefit from them like other shareholders, therefore it was unfair. I know another part of it was encouraging the investment culture in Australia, but I was just wondering the messaging from Costello at the time of the changes.

  48. PeteD

    If it was introduced in 2000, it coincides with a major reform of the whole tax system.

    The refunds would be part of the trade-off for introducing the GST. Just like the increase in the cut in point of the top tax threshold rate of 49% at $50,000.

    One reason why refunds increased, is that the ALP decided in 2011 to triple the tax free threshold as part of the Carbon Tax package while keeping taxes the same above $80,000.

    Now they’re just repeating their trick in government of seeking more tax from perceived Liberals.

  49. Merkin

    Is there anything stopping companies paying out unfranked dividends and leaving the shareholder to sort out their own liabilities.

  50. George Gell

    Bowen’s policy will divert investment by affected parties into real estate to compete with young home buyers.
    It will disadvantage employment creating equities investment making capital more expensive to companies.
    If capital is more expensive to companies there is less of the market price of a product available for remuneration for labour. It will therefore disadvantage the very people the Labor Party purports to represent.
    If Labor considers too much concessions have been given to self funded retirees why not just tax the pensions giving a 15% ( Keating’s percentage) rebate of the pension or even a higher rebate?( e.g 30%). This would not divert capital (i.e. people’s savings) away from employment creating enterprises.
    The only explanation is that Labor wants to force people into union controlled funds giving the unions to power to force its representatives on to boards of directors and divert directors’ fees into the union movement.

  51. Tim Neilson

    Is there anything stopping companies paying out unfranked dividends and leaving the shareholder to sort out their own liabilities.

    The company would still have to pay 30% company tax. If that company tax isn’t used to frank dividends the situation gets worse – the company earns $100 and pays $30 tax, the shareholder gets $70 and is fully taxable on the $70 with no credit at all for the $30.

    The only thing for a company to do is go flat stick to avoid tax. That way it starts with $100, doesn’t lose $30 in tax and can pay the whole $100 as an unfranked dividend to shareholders. That way a shareholder with a less than 30% tax rate doesn’t lose out.

  52. eb

    Is there anything stopping companies paying out unfranked dividends and leaving the shareholder to sort out their own liabilities

    At least for private companies, the only ones I deal with, there is a rule that requires franked dividends to be fully paid out before unfranked dividends can be paid.

    On the issue more broadly, in a private company situation, if a company has $100 profit, it can pay a $70 dividend to shareholders after paying $30 company tax. Under Labor’s system the shareholder then loses any refund entitlement to the $30.

    If the company decided to pay a Directors Bonus to the shareholders/directors of $100 instead, then any PAYG withheld on that bonus would be refundable to the shareholder.

    How can the different treatment be justified, other than being a blatant tax-grab?

  53. blah

    Your Nana is taxing me.

    She pays no tax and then robs my tax money out of my pocket precisely because she pays no tax in the first place.

    Its economic stupidity.

    Franking credits are designed to ensure you don’t pay tax twice on the same money.

    If you pay no tax in the first place you don’t need this relief.

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