Last month, CPA Australia head of policy and advocacy Paul Drum said that Labor should consider other options to its policy for removing refundable excess franking credits to ameliorate the impact on investors.
Mr Drum suggested introducing an annual cap on refundable credits as well as a holistic tax reform.
“One of our key suggestions was that if they were going to go down this path, in the absence of a holistic tax reform and looking at other options such as an income tax discount on income from rents, interest and dividends, which is not on the table, then they should be considering whether perhaps there should be franking credit caps introduced for taxpayers, so if you’re an SMSF or an individual, you might have a cap where you can only get a refund of, say, $20,000 per annum instead of just no refund,” Mr Drum said.
“If parties are going to go down this path of making changes to reduce the amount of franking credits refunded, they need to look at better options rather than what is just on the table and, to be fair, the ALP have demonstrated their preparedness to calibrate the proposal because they have already announced that it wouldn’t apply to pensioners.
“Labor have already demonstrated that they are prepared to respond to community feedback and thinking the policy through, so I would suggest that although it has been announced, people shouldn’t take it as the final word.”
The Institute of Public Accountants likewise suggested that refundable franking credits should not be touched unless it is associated with more holistic tax changes.
The Tax Institute’s senior tax counsel, Professor Robert Deutsch, on the other hand, was more skeptical of the idea of carveouts and caps.
“We’re not enamoured with the idea of carveouts, we’re not enamoured with the idea of caps, we believe the system as it stands works well and is consistent with at least one theory of imputation and we think the status quo should remain, but we’re realistic enough to know that if Labor are likely to win the election, they certainly would have a mandate to do what they are proposing,” Professor Deutsch said.
“The SMSF industry is an important sector and should be nurtured. People should be encouraged to have their own funds and take responsibility for the performance of those funds rather than leaving it to third parties who, having regards to everything we’ve seen in the royal commission, one might argue that you’re better taking responsibility for your own financial future rather than leaving it to a third party.”
It’s not their money. Simply a grab for money by the ALP. Totally appalling.
Simply a tax grab by the ALP. It’s not their money. Totally appalling.[quote=Dr Terry Dwyer, Dwyer Lawyers]About time the Tax Institute said it is an unprincipled tax snatch and grab. The exempt current pension income deduction may be too generous, refunding of franking credits is definitely not.[/quote]
They should put limits on some of the generosity of the ECPI and refundable tax credits. I think it is a fairer system. Not only do retirees have tax free home sales (PPR), but they have ECPI, refundable tax credits, ability to estate plan through withdrawal and re-contribution strategies (minimising or eliminating tax on transfer of wealth on death), and a lot of perks that younger workers do not have, or do not have access to for many years. By that time undoubtedly the system will have changed, and those perks will be minimised, so why not start now to make the system more balanced?
The best way to support those that have saved and built up a nest egg is to leave SMSF’s alone, if they can’t do this a $ 25,000 limit could ensure only the wealthiest are caught. If any still have SMSF’s after the tragedy of the $ 1.6 m cap
As a Self funded Retiree, I am appalled at Labour’s proposed policy of disallowing refund of excess franking credits. I believe it would be an acceptable compromise if say refunds were capped at say $20,000. It is still a blatent tax grab
No, a cap is just limiting the amount of the theft, not eliminating it. The only way, say a $25,000 cap on cash refunds would be acceptable would be if it applied to ALL cash-refunds AND tax-offsets. There is no case to limit cash-refunds but not tax-offsets. So limit BOTH EQUALLY.
“Labor have already demonstrated that they are prepared to respond to community feedback and thinking the policy through…”. I’ve heard just the opposite from Mr Bowen who says they’re “not for turning” on this issue.
About time the Tax Institute said it is an unprincipled tax snatch and grab. The exempt current pension income deduction may be too generous, refunding of franking credits is definitely not.