When the ABC programme, 7.30, reported the announcement of Labor’s new policy on franking credits on 13 March 2018, it highlighted the way a self-funded retiree, Lyle Essery, relied on a refund to finance his relatively modest lifestyle. The ABC report is linked here.
Recently, Cuffelinks posted an article on Labor’s franking by Don Hamson on our Facebook page, and like many posts on this subject, it generated more comments than any other topic. In the following extract from Facebook, the same Lyle Essery explains why be believes Labor policy is poor. The edited exchange illustrates how many people feel about the policy, for and against, but perhaps Lyle goes some of the way to winning the argument. You be the judge.
For context, Don Hamson was explaining why the policy will affect all super funds and not only SMSFs.
Alexander Tootell Get off your greedy platform of filching taxpayers contributions to a fairer society.
Lyle Essery Lol, fairer society where Labor takes $8500 off the gross share income of low income individuals and selfie retirees on a modest $28500pa leaving them with only $20k to support themselves and gives it to rent seekers who may have $100000+ incomes and who are negative gearing and potentially getting franking credits to offset tax on unrelated income.
Alexander Tootell Lyle Essery just find a better and fairer investment, that’s all.
Lyle Essery Alexander Tootell the current treatment of franking is fair. Everyone pays tax on their gross earnings at their marginal tax rates. If you haven’t enough earnings or are concessionally taxed due to being retired and drawing no welfare its reasonable to refund withheld imputed income paid by companies out of part of shareholders earnings. Labor’s franking policy is bonkers.
Alexander Tootell Still working and paying taxes aged in mid 70’s. Would love to claim full refund on my loss years. However unable to claim until a profitable year. That’s the life of a farmer. Any claim by non taxpayers is therefore a RORT.
Lyle Essery Alexander Tootell you don’t understand how imputation works. The tax paid by the company out of part of shareholders earnings and the remainder ( cash div) are shareholders assessable income by law. It their property just as withheld wages PAYE are tax paid by employers out of part of employees wages. It’s property of the person to firstly pay tax liability or if assessed tax liabilities is less than withheld amounts, to be refunded.
Labors franking plan will greatly disadvantaged farmers who have a company structure, common these days, as when the farm Co pays dividend to owners I.e. husband and wife owner unless these people get more than $120k gross divs from their farm they will effectively lose their tax free threshold and be made to pay tax on their farm income at 30% with no tax free threshold.
BTW farmers structured as company or no company partnerships CAN carry forward business losses to future years so you can claim deductions for losses on future years and on occasion, especially in drought or floods farmers have been allowed to carry back losses to past profitable years and access a REFUND.
So I cant understand your position. Labor is lying about how franking works and who is getting their imputed income refunded. Labors franking policy only disadvantages low income individuals (like farm owners) and selfie retirees on modest incomes .
The truely wealthy are unaffected by Labor’s plan as they have lots of tax liabilities to soak up franking credits. (Hence my example of a farmer on over $120k unaffected but a farmer on only $40k distributed farm earnings will have to pay $12,000 tax instead of the current $4500 as the current refund of $7500 franking (paid by their company farm) will be kept by Labor if they arnt a welfare recipient.
Alexander Tootell Its a RORT just find an alternative investment. My taxation to a more worthy cause please.
Lyle Essery Alexander Tootell so a retiree who draws no welfare is not entitled to get their own money refunded when they have paid too much tax withholding???? That’s unreasonable.
Alexander Tootell to recoup tax losses I need to make a profit, pay taxes and then able to claim any loses. The important point is the person who personally made the profit pays the tax and can therefore claims prior losses. Not paid to numerous third parties in a shuffle of paper.
Lyle Essery Alexander Tootell the shareholder who is the beneficial owner of a company made the profit, some of that profit is paid the the ATO as withholding and recorded as a franking credit for the owner and added to the owners taxable income.
If the owners tax liability on taxable income is less than withheld amounts its reasonable to refund those amounts withheld. Labor is refunding withhold imputation income to welfare recipients and NGOs so its reasonable to refund shareholder low income individuals and selfie retirees too.
Alexander Tootell Consider it an inappropriate appropriation of taxation revenue, find another investment.
Lyle Essery My modest nestegg gross earnings can keep me, welfare free, forever, but after Labor legislates to change the rules, even a modest draw will rapidly deplete it. So thinking I’ll go live it up at Lombok/Bali for a while my super lasts and come back just in time for a welfare age pension at 67. If I can live until 87 that’s $500,000 in free government money! I’ll pay the $11,000 retirement tax, reduced every year as selling down assets to live, in ten years I’ll pay around $66,000 of my share earnings as tax. But sometime it’s best to go with the flow, silly to save and plan for a welfare free retirement when the Labor party back stabs you.
Alexander Tootell Costello started this rot, financial advisors exploited it.
Lyle Essery Alexander Tootell actually refunded franking was introduced to eliminate disadvantage to low income individuals and concessionally taxed entities.
Alexander Tootell it has developed into a win for financial advisors and clients and a loss of appropriation for the community.
Lyle Essery Alexander Tootell Q. Why does low income individuals and selfie retirees on modest incomes have to lose income but under Labor the very wealthiest are unaffected? E.g a person with a $4.8 m fund (1.6m PF , $3.2m AF) can use their 30k+ franked withholding to pay tax on $200,000 accumulation earnings. But a low income individuals or selfie retirees on modest incomes with no $3.2m accumulation account has is lose $11,000 of $36k earnings, earnings needed to sustain themselves in frugal comfort! Labors franking policy is bonkers. Labor should drop its loonie plan and develop reasonable policies that makes the wealthy who currently are paying unreasonably low tax on their outsized incomes pay reasonable tax.
Alexander Tootell Lyle Essery you are convincing me that further RORTS need attention, let us hope these are attended to and that appropriation can also attend to community needs. With your dedication and application I am confident that you will find alternative structures to compensate for any changes.
Imputation means attributable. The tax paid by the company out of part of shareholders earnings is their assessible income by law. Even after Labor takes $11,000 of my $36,000 gross shareholder earnings my taxable income will still be $36,000 but now net $25,000. The argument that ‘you haven’t paid tax (even tax on unrelated income or other persons taxes as per pooled funds), you cant get a tax refund’ is Labor lies. Franking credits are a earned tax credits like PAYE not a concessional tax credits like low income tax offset. How about just keep taxing all citizens taxable income at their marginal tax rates – sounds fair and reasonable, and that’s what Labor is planning to do to welfare recipients.