Dear old Dick

Entrepreneur and philanthropist Dick Smith said he received about $500,000 in franking credits in a single year.

Here’s the thing, Dick: if you want to make a point, it’s worth doing some homework.

Now good luck to Dick for his $500,000 tax refund.  He no doubt has one of the few very large legacy superannuation funds, with most of the balance paying 15 per cent tax after the $1.6 million cap was imposed.

There are a handful of these funds still around – with over $100 million – which were often the result of the trustees selling a business very profitably.  This is likely the case with Dick Smith. (We won’t go into what eventually happened to that business.)

But as the trustees die off – I’m assuming that Dick wouldn’t dream of having his children as trustees as well – these large self-managed superannuation funds will disappear.

Returning to the real world, with the caps on both concessional and non-concessional contributions being so low, in the future not many individuals will even reach the $1.6 million cap, so the Dick Smith ‘problem’ will simply not exist.

As to returning the money to the taxman/government, it is probably true that there is currently no provision because it wouldn’t be used enough times to justify. But I am sure that Cats have some good thoughts about what he could do with his half a million bucks.

As for the Labor Party, I would be ignoring the Dick.  The vast majority of cash refunds for franking credits are under $10,000 per year.  (The median is less than $5000.) If Labor were to exempt them, there would be no billions and billions to fund free stuff for their mates.

There is another myth being peddled by the progressive press and that is the flow of cash refunds for franking credits is unsustainable.  This is a complete misunderstanding of how dividend imputation works.  The value of the franking credits is captured one way or another (foreign shareholders apart).  It’s neither here nor there whether they are captured by taxpayers or non-taxpayers.

If the Nine Entertainment media want to get rid of dividend imputation, then it should be upfront.  I can’t see Labor taking up the recommendation.

As you were.

Here’s the puff piece.

 

Millionaire Australian businessman Dick Smith received $500,000 in franking credits from the government in a single year, in what he called an “outrageous” use of taxpayers’ money that should be subject to a means test.

As the Labor opposition awaits a wide-ranging review of its election loss, MPs are divided on whether to scrap the policy of abolishing franking credits, grandfather the scheme or exempt those receiving modest amounts.

Mr Smith, who made his name and fortune with his chain of electronics stores, said he was paid about $500,000 in franking credits in 2016-17, and about $250,000 in 2017-18. His adviser Phil Murrell confirmed those numbers.

The entrepreneur said he had no idea what franking credits were before discovering the payments, and complained to the Australian Tax Office.

“I found I was getting this ridiculous money from the government,” Mr Smith told The Sydney Morning Herald and The Age.

“That’s wrong, I said – I’m wealthy. My accountant said ‘that’s how it works, that’s what you have to do’. I can’t stop it. I think it’s outrageous for wealthy people to be getting money from the government.”

Dividend imputation – which is common globally – provides a dividend recipient with a tax credit for tax that has already been paid by the company producing the dividend. This is to avoid double taxation on the same amount of money.

Changes introduced by John Howard and Peter Costello provided cash back to people who paid no income tax but still received dividends from their portfolios. This was the unusual quirk Labor had planned to abolish.

Mr Smith said Labor should have applied a means test to its policy to ensure that only rich Australians lost the entitlement. As previously reported, Labor considered doing this but decided against it because it would have robbed the party of billions in potential revenue.

The Coalition ruthlessly targeted Labor over the policy – branding it a “retiree tax” – before and during the election campaign, and many Labor figures have conceded it played a role in the party’s unexpected defeat in May 18.

Liberal backbencher Tim Wilson conducted a series of public inquiries around the country which heard from upset retirees who made modest financial gains from their cash refunds but relied on the annual payments.

If elected, Labor will remove the cash refund part of the franking credit system – but what is franking credits and how does it work.

“Labor sold the whole thing incompetently,” Mr Smith said on Tuesday. “They should have put a threshold on it, so wealthy people like me would pay the tax, but pensioners and less well-off people would not meet that threshold.”

When Mr Smith complained about the cash refunds to the ATO in 2017, he received a reply from commissioner Chris Jordan, who promised to look into the businessman’s “unusual request” to pay more tax.

“It’s not every day I get such a request – in fact I can’t think of any day I have been asked that question,” Mr Jordan wrote.

Mr Murrell said Mr Smith had a “classic superannuation fund” and the annual tax refunds he received would be in line with other high net worth Australians.

“Every individual of Dick’s standing would have a similar fund, I would assume,” Mr Murrell said.

Abolishing franking credits would have saved a Labor government $5.6 billion in year one, growing to $8 billion a year, which it could have used to fund other priorities.

Labor MPs broadly fall into two camps: those who want to junk the policy entirely and those who say it should be retained but grandfathered or capped.

Labor MP Ed Husic said the internal review must run its course but warned: “At some point the public is going to question whether we can continue to let this scheme grow at the rate that it is when we have a government quibbling about whether you can afford to properly adjust deeming rates for pensioners.”

Grandfathering the scheme would retain people’s existing benefits but block it for future retirees. This would deny Labor a serious chunk of funding for other priorities.

A cap of $5000 to $10,000 would exempt a large number of shareholders. The Australian Council of Social Services says a rule of thumb indicates a person receiving $10,000 a year in refundable franking credits would generally hold about $500,000 in shares.

Opposition Leader Anthony Albanese and shadow treasurer Jim Chalmers have said Labor’s policies are all up for review and they will not take an identical agenda to the next election.

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56 Responses to Dear old Dick

  1. stackja

    But I am sure that Cats have some good thoughts about what he could do with his half a million bucks.

    Improve nursing home food?

  2. Rococo Liberal

    Interesting how Smith, who should know better, calls the credits he received ”government money”. That’s right, Dick, all money belongs to the government, they just let us keep some of it so we can live. But it mustn’t be too much, because the government knows best how its money should be spent.
    But seriously, why don’t these wankers understand how the imputation system works.
    Corporate tax is a down payment of individual tax. If the person who ultimately gets the company’s profits has a higher marginal rate than the corporate rat he pays further tax on his dividend so as to top up the tax to that marginal rate. If the dividend recipient has a lower marginal rate then he gets a refund, so as to ensure that the corporate profits were taxed at the correct rate and not at the higher corporate rate.
    This is a simple concept. But ignorant arseholes on the left can’t grasp that company profits should only be taxed once.
    Repeat afte me, stupid Labor person, corporate tax is a downpayment of individual tax.

  3. Fred

    As I pointed out in the other thread:

    Dick Smith can easily withdraw all his money from his SMSF and keep it in his personal name. Then he can pay 47% tax on his earnings, instead of 15%.

  4. Zulu Kilo Two Alpha

    Dick Smith? Wasn’t he the rooster that said David Hicks wasn’t getting a “fair go?”

  5. Bunyip Bill

    This thought bubble by Dickie is par with his usual publicity seeking crap. Did he even think what a difference this would make to superanuants pay out from superanuation funds.The bloke is a drop kick.

  6. Zulu Kilo Two Alpha

    The entrepreneur said he had no idea what franking credits were before discovering the payments, and complained to the Australian Tax Office.

    What rock was he living under, for chuck’s steak.

  7. Iain Russell

    What a dear old duck is Duck.

  8. Fibro

    Dick, here is some ideas of what you can do with your $500K, after all you are ‘passionate’ about them.

    Build a couple of wind turbines
    Sponsor a Border Force patrol boat
    Create a couple of family planning clinics
    Put some money back into the Lord Howe community

    Nah, didn’t think so.

  9. This narcissist fvckwit whom I’ve abhored for the longest time now, must be feeling irrelevant so he stuck his ugly head out KNOWING FULL WELL HE DIDN’T HAVE TO PAY THE HALF MIL.
    There are endless ways Prick Smith could give that money to the Government. Virtue signaling and grandstanding in the media ain’t one of ’em.

  10. Tezza

    What an incredible string of bad luck to befall a financially well-informed person: first buying a ton of equities paying franked dividends, then having them held in his super fund. The guy must be due for his bad luck to turn.

  11. Eyrie

    Dick did valuable work exposing Australia’s dysfunctional aviation regulatory system but ultimately to no avail. CASA is just as incompetent and corrupt as ever and has wrecked a valuable industry.
    However on many other issues he betrays his lack of a wider world view which may be partially due to a limited education and lack of wide reading.

  12. I link Dick Smith with that other tosser Hardly Normal. The latter’s wailing about overseas purchases destroying Australian businesses because of the $1000 import duty exemption, was a complete crock.

  13. Genghis

    Dear Dick,
    You mean you have not noticed before this year. O’h dear how naive & stupid you are. Yet you are always giving comments on all sorts of things. Perhaps some more time with your accountant would help.

  14. Notafan

    Iirc Anthony Albanese admitted the vast majority of franking credit rebates were very small amounts, and that Labour’s policy hurt the little people

  15. sabena

    If Dick feels he is not entitled to or its unfair to receive the money,he can always donate it to the Government.
    But there’s no indication that he has or will do so.

  16. FelixKruell

    Is Dick even sure he’s getting a cash refund for franking credits, as opposed to just ordinary franking credits to offset his other tax payable?

  17. Jock

    Dick is a duck. If he is still in accumulation them he pays 15percent tax and gets franking credits to reduce it. If he is in pension then he pays 15percent on income on the assets in excess of 1.6mill. My point is that if this lackwit wants to pay 45percent on his dividends then fine but please leave the rest of us to alone.
    If he feels so guilty just draw all his super as a lump sum and give it away.

  18. Jock

    Should add that if duck doesn’t know what a franking credit is then as a trustee he is in breach of the SSA act as well as the tax act. He would have to have signed the return as a trustee. But how could he have verified the accounts of and the return without knowing such basic stuff.

  19. Bruce of Newcastle

    Plenty of worthy charities that Dick could give his tax refund to, including some that are even tax deductible. In donating it all he could exercise his own personal choice in where the spending goes. Which for most of us we don’t have any choice over, as our betters in Canberra apparently know better.

  20. max

    Franking credits are a type of dividend imputation and a way to reduce or eliminate the double taxation of dividends that occurs in many advanced economies. They may also be known as imputation credits.

    The corporation income tax is the cause of double taxation. The individual taxpayer is taxed once when his profit is earned by the corporation, and once again when he receives the profit as a dividend. This double taxation makes it more difficult to get people to invest their savings in business than if the profits of business were only taxed once. Furthermore, stockholders with small incomes bear as heavy a burden under the corporation income tax as do stockholders with large incomes.

    The third unfortunate consequence of the corporation income tax is that the same earnings are taxed twice, once when they are earned and once when they are distributed. This double taxation causes the original profit margin to carry a tremendous burden of tax, making it difficult to justify equity investment in a new and growing business. It also works contrary to the principles of the progressive income tax, since the small stockholder, with a small income, pays the same rate of corporation tax on his share of the earnings as does the stockholder whose total income falls in the highest brackets. This defect of double taxation is serious, both as it affects equity in the total tax structure, and as a handicap to the investment of savings in business.

    https://www.garynorth.com/public/9036.cfm

  21. max

    (2) Corporate Income Taxation
    Taxation of corporate net income imposes a “double” tax on the owners of corporations: once on the official “corporate” income and once on the remaining distributed net income of the owners themselves. The extra tax cannot be shifted forward onto the consumer. Since it is levied on net income itself, it can hardly be shifted backward. It has the effect of penalizing corporate income as opposed to income from other market forms (single ownership, partnerships, etc.), thereby penalizing efficient forms of enterprise and encouraging the inefficient. Resources shift from the former to the latter until the expected rate of net return is equalized throughout the economy—at a lower level than originally. Since interest return is forcibly lower than before, the tax penalizes savings and investment as well as an efficient market form.24
    The penalty, or “double-taxation,” feature of corporate income taxes could be eliminated only by abolishing the tax and treating any net incomes accruing to a corporation as pro rata income to its stockholder-owners. In other words, a corporation would be treated as a partnership, and not according to the absurd fiction that it is some sort of separate real entity functioning apart from the actions of its actual owners. Income accruing to the corporation obviously accrues pro rata to the owners. Some writers have objected that the stockholders do not really receive the income on which they would be taxed. Thus, suppose that the Star Corporation earns a net income of $100,000 in a certain period, and that it has three stockholders—Jones, with 40 percent of the stock; Smith, holding 35 percent of the stock; and Robinson, owning 25 percent. The majority stockholders, or their management representatives, decide to retain $60,000 as “undistributed” earnings “in the firm,” while paying only $40,000 as dividends. Under present law, Jones’ net income from the Star Corporation is considered as $16,000, Smith’s as $14,000, and Robinson’s as $10,000; the “corporation’s” is listed at $100,000. Each of these entities is then taxed on these amounts. Yet, since there is no real corporate entity separate from its owners, the incomes would be more properly recorded as follows: Jones, $40,000; Smith, $35,000; Robinson, $25,000. The fact that these stockholders do not actually receive the money is no objection; for what happens is the equivalent of someone’s earning money yet keeping it on account without bothering to draw it out and use it. Interest that piles up in someone’s savings bank account is considered as income and taxed accordingly, and there is no reason why “undistributed” earnings should not be considered individual income as well.
    The fact that total corporate income is first taxed and then “distributed” as dividend income to be taxed again, encourages a further distortion of market investment and organization. For this practice encourages stockholders to leave a greater proportion of their earnings undistributed than they would have done in a free market. Earnings are “frozen in” and either held or invested in an uneconomic fashion in relation to the satisfaction of consumer wants. To the reply that this at least fosters investment, there are two rejoinders: (1) that a distortion in favor of investment is as much a distortion of optimum market allocations as anything else; and (2) that not “investment” is encouraged, but rather frozen investment by owners back into their original firms at the expense of mobile investment. This distorts and renders inefficient the pattern and allocation of investment funds and tends to freeze them in the original firms, discouraging the diffusion of funds to different concerns. Dividends, after all, are not necessarily consumed: they may be reinvested in other firms and other investment opportunities. The corporate income tax greatly hampers the adjustment of the economy to dynamic changes in conditions.

    https://mises.org/library/power-and-market-government-and-economy/html/pp/584

  22. chrisl

    The problem with “taxing the rich” is that there aren’t enough of them. The majority are battling middle class.And those that pay no tax.
    Everyone struggles on their own level

  23. Terry

    Simple fix Dick, next time you make a “notable donation” to charity of choice, don’t claim the tax deduction to the tune of $500,000 – problem solved.

    In the meantime, how about leaving Pensioners alone. If you do, maybe less of them will need the proceeds of your next “notable donation”.

  24. Terry

    @chrisl
    The problem with “taxing the rich”

    First they came for the rich…

    …Then the middle class, then the working class.

    Suddenly, anyone that wasn’t working poor was simply poor and the “lucky country”, suddenly Venezuela.

    There you go, “equalidee” achieved. Complete misery and despair distributed evenly across the populace; except for the overlord class of course. They’re too good for that – what would we do without them?

  25. Dr Fred Lenin

    This is the bloke who made faux vegemite ! That should be a prison term for treason ,now Bega make the real stuff and the peanut butter Kraft made and its good stuff too .
    The Great Aussie Battler who made his fortune selling Asian stuff he bought dirt cheap and sold dear ,did a lot for Australia flooding it with cheap Asian tatt.

  26. Iva Right

    If Dick thinks he can’t reverse this situation and not get the franking credits he is either naive or stupid. Quite simple Dick stick the money in the bank and declare the interest – your conscience will be clear,

  27. Ƶĩppʯ (ȊꞪꞨV)

    If Dick feels he is not entitled to or its unfair to receive the money,he can always donate it to the Government.

    send it back Dick. ….. Bueler…… Bueler…….

  28. Tim Neilson

    But ignorant arseholes on the left can’t grasp that company profits should only be taxed once.

    True, but there are also leftists who aren’t ignorant arseholes, but who want to steal as much as they can from self funded retirees to pay for free stuff for voteherds.

    And I suspect that the ALP leadership team are mostly of that latter category. The former are just the useful idiots – “four legs good, two legs baaaaad”.

  29. Howard Hill

    Dr Fred Lenin
    #3109492, posted on July 17, 2019 at 12:46 pm

    The Great Aussie Battler who made his fortune selling Asian stuff he bought dirt cheap and sold dear ,did a lot for Australia flooding it with cheap Asian tatt.

    The Hippocracy of these fcukwits is breathtaking, Fred.

  30. bollux

    He could shut up and give it back if it worries him so much. I think that’s allowed.

  31. vlad

    He can give it to me.

    Problem. Solved.

  32. Mark Harrison

    Once you teach 75 you have to pay out 7% of your super fund per year, rising to 14% eventually. So these $100m super finds will gradually become extinct.

  33. John A

    bemused #3109419, posted on July 17, 2019, at 11:01 am

    I link Dick Smith with that other tosser Hardly Normal. The latter’s wailing about overseas purchases destroying Australian businesses because of the $1000 import duty exemption, was a complete crock.

    Ah, so nice to hear that I am not alone on this. I have been reminding Cats and other bloggers elsewhere about his erroneous understanding of GST ever since (and every time) he started moaning.

  34. I_am_not_a_robot

    The same report is in today’s SMH by Michael Koziol;

    Labor considered doing this but decided against it because it would have robbed the party of billions in potential revenue.
    Abolishing franking credits would have saved a Labor government $5.6 billion in year one growing to $8 billion a year …

    Framing tax cash refunds as ‘robbing the party’ and abolishing them as a Labor Government ‘saving’ betrays a particular mindset.

  35. Thomas Pettet

    Reading this thread has given me hope that there are sensible ppl out there. My personal experience is that, courtesy of the labor party campaign labeling ppl who benefit from franking credits as”the big end of town” and “rorting the system”, some of my left leaning friends now view me with contempt. Labor’s agenda was a naive philosophy that wealth needed to be redistributed due to perceived inter generational inequity. Bill Shorten became drunk with power that he didn’t have, and blew a winnable contest, because he believed his class warfare would resonate with young voters. Methinks Mr Smith realizes the pigeons will be coming home to roost, and he is throwing his accountant under the proverbial bus. I’m pretty sure Pol Pot thought that wealth redistribution was a good thing too.

  36. bespoke

    Dick was in favor of reducing immigration but that’s it.

  37. Squirrel

    Dick Smith deserves credit for calling out the Big Australia idiocy, so he could put some of this money where his mouth is and give it charities which help those at the sharp end of Big Australia – i.e. the homeless – and that would be a really good opportunity to give further publicity to his arguments on that subject.

  38. Frank Walker from National Tiles

    Ole’ Dick loved free trade until it wasn’t advantageous to him.

    He’s like an elitist globalist c*** and a basement-dwelling nationalist loser rolled into one.

    He also is a warmie who wants to reduce the human population.

    He hasn’t given up flying or knocked off his own progeny yet.

    He can go f*** himself.

  39. Davo

    What a tool

    If Dick wants to give his legitimate money back to the government to likely waste, he can

    I don’t want the virtue signalling morons getting what is mine

    Just abolish company tax and let shareholders pay the tax when they receive dividends

  40. MatrixTransform

    let shareholders pay the tax when they receive dividends

    that’s what happens now
    whether they’re they’re franked or unfranked

    what? do people think that franked dividend only ever result in payment from the Tax Office?
    Works the other way too.

    get a franked dividend and then pay to the Tax Office, the difference between the franking credits and yr marginal rate.

    if it stays in the company there’s one tax rate.
    If it flows to individuals then there’s another

    what the hell is so hard to comprehend about this?

  41. Zulu Kilo Two Alpha

    what the hell is so hard to comprehend about this?

    I’m amazed at the depths of ignorance, and sheer stupidity, on the subject.

  42. Fat Tony

    I think Dick needs a…helping hand..

  43. Robbo

    Dick made his fortune by bringing in cheap Asian electrical rubbish and selling it to Australians with a huge mark up. On the way to his squillions he put out of business God knows how many Australian manufacturers but of course that didn’t faze Dick one little bit. He made his pile and then flogged off the business, making more millions from the deal, and then settled down to lecture us on why we should buy Australian produced products. What a blindingly thick skinned hypocrite is Dick and his hypocrisy continues. Having trousered $500,000 in a single year from franking credits he now delivers another lecture about why the system should be severely restricted. Apart from the fact that Dick is as ignorant as dog shit about franking credits he waited for his “bonus” to be received into his bank account before proceeding with his mealy mouthed pile of weasel words. Well Dickie if you think the system is wrong then give your half a mill back. If you keep the money then shut your bloody mouth.

  44. Crossie

    It’s hardly believable that Dick, who ran a big business, doesn’t or didn’t know how tax works but I could be persuaded that he is becoming senile.

  45. Amused

    I’m all for rich leftists being stripped entirely of their assets and left homeless on the street.

    The spoils taken from them should exclusively be used by politicians to build un-needed toilet blocks in schools. Plaques commemorating who the funds were taken from can be affixed to the toilet blocks.

  46. Amused

    “Dick Smith Toilet Block No. 205”

  47. Amused

    It doesn’t matter if the school already has enough toilet blocks. We’re building the ablution revolution!

  48. Jonesy

    Something doesnt smell right here. Dick either overpaid half a mill or Dick has structured his vast investments to leave his personal account below the taxable threshold. Aren’t trusts fantastic?

  49. Tapdog

    Yeah let’s get stuck into Dick. He’s too old. Too rich.

  50. Terry

    @ Tapdog

    You should be in advertising (if not already)
    “Yeah let’s get stuck into Dick.”
    Gay Mardi Gras will “be all of this”.

    “He’s too old. Too rich.”
    I don’t think anyone has identified either of these facets as “a problem”.

    His sanctimonious, ignorant hypocrisy however…well, that’s another (the) story.

  51. DaveR

    Once he was the Electronic Dick.

    Then he was the Green Dick.

    Now he’s just a Silly Old Dick.

  52. Dr Fred Lenin

    What about the Kim dynasty in North Korea , dictators dont co e any more benevolent than fatty kim ,take a poll in Pyonyang ,you will be amazed at the result , 107.87 per cent in favour of fatty . Same pollsters as the hilarity and shorten campaigns , so it must be right .

  53. DaveR

    Dr Fred, I see you have reverted your nationality and are no longer Welsh. Probably a good choice.

  54. Empire 5:5

    DS is a lying sack of shit.
    If he hassles the blog owner for my identity for defamation reasons (has form) I won’t resist. It will be a glorious discovery. The conga line of aviators alone willing to serve the smartarse prick comeuppance would devastate any remaining shreds of credibility.

    Pro bono gold class legal team locked and loaded.

  55. Empire 5:5

    If these sanctimonious turds are serious, the solution is simple.

    Liquidate all assets, purchase a median price abode in a middle suburb of a capital city, purchase an indexed pension to AWE and donate the remainder to the ATO as a one off special dividend.

    Then shut the fuck up.

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