In an ABC 7.30 interview, Mr Shorten was asked if the proposed changes to franking credits would mean that self-funded retirees like Chris Phillips, who currently receives $9,000 in franking credit refunds out of a $36,000-a-year income, would be forced to rely “on the public purse”.
“He already is, and this is the real heart of the issue,” Mr Shorten said.
“When you get an income tax credit when you haven’t paid income tax, it’s a gift from the government. You’re already on the public purse.
“But the criteria by which you get this money is that you happen to own shares, and [Prime Minister Scott] Morrison has been most dishonest on this where he says we are coming for people’s savings — no, we’re not — and he’s been dishonest by saying this is a tax.”
Shadow treasurer Chris Bowen was made to clarify his comments around figures used to support the policy earlier this week.
But Mr Shorten has not softened his stance around the proposed changes, insisting that it was “a gift” that was costing the government $6 billion a year.
The Labor leader has so far promised close to $7 billion in spending on childcare subsidies and pensioner dental care, as well as a $2.3 billion Medicare cancer plan.
“What the Liberals don’t say to you is that, when you get this dividend income, you own shares, you get this interest or dividend from the shares, it is tax-free,” Mr Shorten said.
“Not only do you get this income tax-free, you get a 30 per cent top-up from the government; it is a government payment.
“It is not illegal and it is not immoral, but this generous gift going to some people purely on the basis that they get dividends from shares and don’t pay tax is costing $6 billion a year and nearly $8 billion a year in the very near future — it is eating the budget and it is just a gift.”
The Labor policy leads to the ridiculous result that a person/couple close to receiving the pension but having too many assets, should spend money on trips / cruises / renovations in order to qualify for a part pension, and thereby continue to receive franking credit refunds (in addition to their new part pension). They will be better off financially than the person/couple who remain self-funded!
Except they would be too late because they needed to be on a government pension over a year ago to receive the concession.
Thank you for this well described situation of all of us SMSF members. We spend the franking credits which goes back into the community with 10% GST. I can’t understand why the Liberal Party, aka Scott Morrison is not defending us . This article should be published on Twitter!
[quote=Ian Princehorn FCPA]Typical of Bill Shorten. Short on understanding! Short on understanding that it is a strong economy that creates jobs. Short on understanding it is healthy businesses that create wealth, prosperity and jobs. Short on understanding that government need to create an environment where businesses can prosper. Short on understanding that Australian businesses are competing in a very competitive world market. Short on understanding taxation is a choke on the economy. Short on understanding that government waste and resultant high expenditure and high taxation reduces the size of the economy and the ability of an economy to provide infrastructure and safety nets for the less fortunate. He is not short, however, on how to fool the electorate. He does not seem to care if that is done with lies and errors of fact. One eighty degree changes of view to suit his opposition at the time. Anything to win votes. For example, during the last election he used the Medicare scare campaign. This time however, I think his short understanding of franking, taxation and welfare system will come back to bite him, or at the very least should. He is short of understanding the people he will hurt most are not the wealthy, but taxpayers who have a low taxable income, people saving for retirement and retirees. Additionally, why single out franking? Why not just stop all tax refunds?
Let me explain:
Franking credits are a credit for the tax already paid on the income to which it is attached. To deny a refund for excess franking credits is just the same as denying a refund for excess PAYG tax credits and It will impact those who have a marginal tax rate lower than the company tax rate. Currently, those taxpayers on a marginal tax rate higher than current company tax rate of 30% have to pay additional tax on the franked income to bring the tax rate up to their marginal tax rate. That’s right! Pay additional tax on both the dividend and the franking credit to bring the tax up to their marginal tax rate. If the government is successful reducing the company tax rate to 25% then a lot more taxpayers will need to top up the tax already paid on the dividend. It is fair and reasonable that taxpayers with excess franking credits receive a refund for the tax already paid in excess of the tax assessed on their taxable income. Just like receiving a refund for excess PAYG.
A fully franked dividend of $0.70 represents a distribution of company profit of $1. i.e. say a company has a taxable income of $1, pays $0.30 tax leaving $0.70 available to be paid to shareholders as a fully franked dividend of $0.70 cents plus $0.30 franking credit. i.e. the franking credit is a credit for tax already paid on the income just like PAYG.
To say those who receive a refund of franking credits don’t pay any tax is an error of fact and either shows complete ignorance or is a lie. (So long as it wins votes who cares? Me on both counts!). It is as wrong as saying those who receive a tax refund, for any reason, don’t pay tax.
The dividend, including the franking credit, is included in the shareholders taxable income and tax is then assessed on the grossed up amount (taxable income) and taxed at the applicable rate i.e. $.070 dividend plus $0.30 franking credit = $1.00 is added to the shareholders taxable income. The shareholder is assessed on their taxable income according to the applicable personal or superfund tax rates. A credit just like PAYG is then given for $0.30 tax already paid. The shareholder will have to pay additional tax on the franked dividend (including the franking credit) if their marginal tax rate is greater than the company tax rate. i.e. the shareholder pays tax on the dividend and the franking credit at their marginal tax rate. It is fair and reasonable those who have paid more tax than their assessed tax receive a refund.
Additionally, the proposed policy would have an unequal impact on taxpayers with a marginal tax rate less than the company tax rate, due to different proportions of franked income to total taxable income. For example:
• Superannuation funds may have a high level of concessional contributions, unfranked income including interest income and be predominately in accumulation phase with all income subject to 15% tax. In this situation a relatively small amount of franking credits would only offset tax otherwise payable and would have nil effect. Other funds may have a high proportion of franked dividends and be predominately in pension phase with an intended tax rate on income of 0%. The latter fund would not receive a refund for excess franking credits and be taxed at 30% i.e. at twice the rate of a fund in accumulation phase.
• With relation to individuals, say a low marginal tax rate individual has only franked income. If these taxpayers lose the refund of the franking credit they will be taxed at 30% on all income including taxable income less than the tax-free threshold.
There are other issues to consider as well:
Under Shorten’s proposal, the tax credits that dear Bill takes away from taxpayers remain included in their taxable income with the resultant impact on tax payable, Medicare Levy, Medicare Levy Surcharge, entitlements to income tested Centrelink benefits such as pensions, all tax rebates such as private medical fund rebate and all income tested concessions. At the same time Shorten is falsely spreading the notion recipients of franking credits are tax cheats, receiving a “benefit” at the expense of government funded pensioners. The taxpayers who are impacted are all taxpayers that have a marginal tax rate less than the company tax rate. These include low income earners, people saving for retirement and funded retirees.
It is easy for those who have the benefit of an unfunded defined benefit superannuation fund, such as Bill Shorten, to attack those who don’t. I am sure that all politicians, except Peter Costello, do not understand how difficult it is to be become and sustain a self-funded retiree.
Additionally, removal of the refund for franking will increase the cost of capital for companies. To the extent shareholders do not receive a credit for the tax already paid there is a corresponding reduction in the rate of return to shareholders. The price of the shares will fall to compensate for the lower return. It is my belief the market has already increased the cost of capital in anticipation that Shorten may succeed. The share prices of high yield fully franked dividend paying companies took an immediate hit following the announcement. If a company’s shares are worth less, more shares must be issued to raise a given amount of capital. Company earnings will be divided by a greater number of shares, lowering the value of their shares even further. A lower share price makes it more difficult for companies to raise capital and justify capital expenditure i.e. More difficult for companies to fund investment in plant and equipment renewal or fund growth opportunities. This will have an adverse impact on employment opportunities.
Shorten helped destroy our industry with his pig headed excessive demands, some might even say blackmail, of industry, leading to the demise of manufacturing in this country. He was a major, shifting from one side to the other, player in the Rudd, Gillard, Rudd Government that turned a surplus budget into a record deficit budget. Even more extraordinary during a period of record Federal income due to the high taxation receipts during the mining boom and at a time when the Federal budget had no interest expense because the Howard/Costello Government had repaid all debt. In opposition, his hate for anyone who tries to produce something continues. He has blocked initiatives to reduce waste and excessive Government expenditure. Blocked attempts to stop abuse of our social support system. He prefers to attack anyone or anything that has worked hard and saved. He has bashed the banks forcing a royal commission at great expense. While I accept our banks are not without faults, like any institution, he has attacked them for his own political advantage. We should remember our banks were strong and steadfast through the GFC. He has promoted the thought that they are making excessive profits. They do make large profits, but they are also very large companies. Their profits are not excessive when considered, as they should be, on a risk weighted return on capital employed basis. Personally, I think it would be scary if they were not earning the return on capital they are. They work on very fine margins and risk of them becoming unprofitable with a change in economic conditions high. If the country does not have strong banks the country will go down, taking us all with them. In my opinion Shorten is short on the truth and short on substance.
I can conclude that Shorten’s proposal attacks low taxable income taxpayers and retirees because these are the taxpayers that will suffer most under his proposal. Additionally, his proposal will make it more difficult for Australian companies to compete in the world market due to an increase in the cost of capital.
This is my personal opinion. I cannot stay silent any longer and watch this person continue to destroy the hard work of others.
Ian Princehorn FCPA
[/quote][quote=Anonymous]A direct insult to owners of companies which paid the tax credited by ATO to shareholders receiving dividends.
“Gift” – a ‘Big Lie’.[/quote]
So it is a gift when paid to SMSF members but not when paid to pensioners in an industry fund… If all SMSF pensioner members would up their funds and put their money into industry funds there would be not refunds to be paid to SMSFs but industry funds would pay less overall tax so a tax neutral position… Not sure how Labor would pay for their other election promises if this occurred?
They should either have dividend imputation, or get rid of it altogether. Currently I pay income tax at a higher marginal rate than 30% – so when I receive dividends that I earn from assets held personally, I have to top up the tax I pay. I (was) looking forward to a future where I could potentially live off my dividends and get a refund due to my earnings putting me on a marginal tax rate somewhere below 30%. This is fair, on both sides currently.
Shorten and the ALP want their cake and want to eat it too. They want to continue to impute my dividend income to include the corporate tax paid, and make me pay *more* tax accordingly when it is due, but want to take it away when imputation results in a refund being due. This is patently unfair – it’s nothig short of a tax grab.
If they just remove imputation altogether, it would at least be fairer – thnough still a massive backward step. But this would mean the government misses out on getting the extra tax due form the imputation system as well as avoiding paying the refunds where/when they are due.
If Mr Shorten wants to deny franking credit cash refunds, he should also be allowing investors to nominate their income as the dividend received, not the grossed-up dividend. Only fair – which he spruiks ad nauseam.
Typical of Bill Shorten. Short on understanding! Short on understanding that it is a strong economy that creates jobs. Short on understanding it is healthy businesses that create wealth, prosperity and jobs. Short on understanding that government need to create an environment where businesses can prosper. Short on understanding that Australian businesses are competing in a very competitive world market. Short on understanding taxation is a choke on the economy. Short on understanding that government waste and resultant high expenditure and high taxation reduces the size of the economy and the ability of an economy to provide infrastructure and safety nets for the less fortunate. He is not short, however, on how to fool the electorate. He does not seem to care if that is done with lies and errors of fact. One eighty degree changes of view to suit his opposition at the time. Anything to win votes. For example, during the last election he used the Medicare scare campaign. This time however, I think his short understanding of franking, taxation and welfare system will come back to bite him, or at the very least should. He is short of understanding the people he will hurt most are not the wealthy, but taxpayers who have a low taxable income, people saving for retirement and retirees. Additionally, why single out franking? Why not just stop all tax refunds?
Let me explain:
Franking credits are a credit for the tax already paid on the income to which it is attached. To deny a refund for excess franking credits is just the same as denying a refund for excess PAYG tax credits and It will impact those who have a marginal tax rate lower than the company tax rate. Currently, those taxpayers on a marginal tax rate higher than current company tax rate of 30% have to pay additional tax on the franked income to bring the tax rate up to their marginal tax rate. That’s right! Pay additional tax on both the dividend and the franking credit to bring the tax up to their marginal tax rate. If the government is successful reducing the company tax rate to 25% then a lot more taxpayers will need to top up the tax already paid on the dividend. It is fair and reasonable that taxpayers with excess franking credits receive a refund for the tax already paid in excess of the tax assessed on their taxable income. Just like receiving a refund for excess PAYG.
A fully franked dividend of $0.70 represents a distribution of company profit of $1. i.e. say a company has a taxable income of $1, pays $0.30 tax leaving $0.70 available to be paid to shareholders as a fully franked dividend of $0.70 cents plus $0.30 franking credit. i.e. the franking credit is a credit for tax already paid on the income just like PAYG.
To say those who receive a refund of franking credits don’t pay any tax is an error of fact and either shows complete ignorance or is a lie. (So long as it wins votes who cares? Me on both counts!). It is as wrong as saying those who receive a tax refund, for any reason, don’t pay tax.
The dividend, including the franking credit, is included in the shareholders taxable income and tax is then assessed on the grossed up amount (taxable income) and taxed at the applicable rate i.e. $.070 dividend plus $0.30 franking credit = $1.00 is added to the shareholders taxable income. The shareholder is assessed on their taxable income according to the applicable personal or superfund tax rates. A credit just like PAYG is then given for $0.30 tax already paid. The shareholder will have to pay additional tax on the franked dividend (including the franking credit) if their marginal tax rate is greater than the company tax rate. i.e. the shareholder pays tax on the dividend and the franking credit at their marginal tax rate. It is fair and reasonable those who have paid more tax than their assessed tax receive a refund.
Additionally, the proposed policy would have an unequal impact on taxpayers with a marginal tax rate less than the company tax rate, due to different proportions of franked income to total taxable income. For example:
• Superannuation funds may have a high level of concessional contributions, unfranked income including interest income and be predominately in accumulation phase with all income subject to 15% tax. In this situation a relatively small amount of franking credits would only offset tax otherwise payable and would have nil effect. Other funds may have a high proportion of franked dividends and be predominately in pension phase with an intended tax rate on income of 0%. The latter fund would not receive a refund for excess franking credits and be taxed at 30% i.e. at twice the rate of a fund in accumulation phase.
• With relation to individuals, say a low marginal tax rate individual has only franked income. If these taxpayers lose the refund of the franking credit they will be taxed at 30% on all income including taxable income less than the tax-free threshold.
There are other issues to consider as well:
Under Shorten’s proposal, the tax credits that dear Bill takes away from taxpayers remain included in their taxable income with the resultant impact on tax payable, Medicare Levy, Medicare Levy Surcharge, entitlements to income tested Centrelink benefits such as pensions, all tax rebates such as private medical fund rebate and all income tested concessions. At the same time Shorten is falsely spreading the notion recipients of franking credits are tax cheats, receiving a “benefit” at the expense of government funded pensioners. The taxpayers who are impacted are all taxpayers that have a marginal tax rate less than the company tax rate. These include low income earners, people saving for retirement and funded retirees.
It is easy for those who have the benefit of an unfunded defined benefit superannuation fund, such as Bill Shorten, to attack those who don’t. I am sure that all politicians, except Peter Costello, do not understand how difficult it is to be become and sustain a self-funded retiree.
Additionally, removal of the refund for franking will increase the cost of capital for companies. To the extent shareholders do not receive a credit for the tax already paid there is a corresponding reduction in the rate of return to shareholders. The price of the shares will fall to compensate for the lower return. It is my belief the market has already increased the cost of capital in anticipation that Shorten may succeed. The share prices of high yield fully franked dividend paying companies took an immediate hit following the announcement. If a company’s shares are worth less, more shares must be issued to raise a given amount of capital. Company earnings will be divided by a greater number of shares, lowering the value of their shares even further. A lower share price makes it more difficult for companies to raise capital and justify capital expenditure i.e. More difficult for companies to fund investment in plant and equipment renewal or fund growth opportunities. This will have an adverse impact on employment opportunities.
Shorten helped destroy our industry with his pig headed excessive demands, some might even say blackmail, of industry, leading to the demise of manufacturing in this country. He was a major, shifting from one side to the other, player in the Rudd, Gillard, Rudd Government that turned a surplus budget into a record deficit budget. Even more extraordinary during a period of record Federal income due to the high taxation receipts during the mining boom and at a time when the Federal budget had no interest expense because the Howard/Costello Government had repaid all debt. In opposition, his hate for anyone who tries to produce something continues. He has blocked initiatives to reduce waste and excessive Government expenditure. Blocked attempts to stop abuse of our social support system. He prefers to attack anyone or anything that has worked hard and saved. He has bashed the banks forcing a royal commission at great expense. While I accept our banks are not without faults, like any institution, he has attacked them for his own political advantage. We should remember our banks were strong and steadfast through the GFC. He has promoted the thought that they are making excessive profits. They do make large profits, but they are also very large companies. Their profits are not excessive when considered, as they should be, on a risk weighted return on capital employed basis. Personally, I think it would be scary if they were not earning the return on capital they are. They work on very fine margins and risk of them becoming unprofitable with a change in economic conditions high. If the country does not have strong banks the country will go down, taking us all with them. In my opinion Shorten is short on the truth and short on substance.
I can conclude that Shorten’s proposal attacks low taxable income taxpayers and retirees because these are the taxpayers that will suffer most under his proposal. Additionally, his proposal will make it more difficult for Australian companies to compete in the world market due to an increase in the cost of capital.
This is my personal opinion. I cannot stay silent any longer and watch this person continue to destroy the hard work of others.
Ian Princehorn FCPA
100% agree with every word Ian.
Mr Shorten. Is far away from the facts.
first. franking credits can only apply if you made profits from income generating entity(business) meaning there was tax payments from the entity.so for you can have a franking credit.
second. a lot of the people who pay taxes and accrued franking credits do not often can use their credits because will increase their personal taxable income.
third. in most cases franking credits becomes a tax liability rather than benefit.
if Mr Shorten is serious about it. the areas to focus on is building wealth for income earners so that they can pay more tax as a result of higher profits or income. how do we do that. well create a positive environment for investment and not assault Australian who have a legal right to incentives a result of hard work and family life depravations to keep ahead of government hand outs.
Not sure about mr Shorten policies? Simple is an artist with not art ability and capacity to compete for the job.
All of your money belongs to the ALP, except for the small amounts which they generously allow you to keep. All hail King Bill.
Self funded retirees have made their contribution to society and paid taxes over their working life; they have paid tax on earnings that have been saved to provide for themselves in retirement. Why should they not be entitled to get something back. Why not cancel the “Politicians Junkets”..
The Reform Of The Australian Tax System, Draft White Paper 1985, para.17A-1: “[i]… an ideal benchmark… the share of company profits attributable to a particular shareholder should bear overall tax at the shareholder’s marginal tax rate[/i]”
Would he say the same about PAYG refunds?
If it’s a gift ban the refunds for everyone then. Why bother to grandfather refunds for people that are already receiving the age pension? That’s double dipping. You’re creating 2 different sets of rules and discriminating. Continue to allow them or ban them completely. Furthermore, the savings the government gets are going to be lost by more people falling back onto the age pension. Will end up costing the government money, not saving them money.
Let’s spend the money to get age pension..
A direct insult to owners of companies which paid the tax credited by ATO to shareholders receiving dividends.
“Gift” – a ‘Big Lie’.