A response from Chris Bowen on franking

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A reader, Alan, received the following reply from Shadow Treasurer, Chris Bowen, on Labor’s franking credits proposal. It adds some balance to the debate in these pages which has been dominated by criticisms. Mr Bowen’s office has confirmed to Cuffelinks that the reply is genuine.

Also, many of our readers have said they wrote to Chris Bowen and did not receive a reply, so this is a way to reach them.

The original Labor policy on Chris Bowen’s website is here. Note it has an implementation date of 1 July 2019, only a few months away.

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I sent an email to Chris Bowen and got an answer. I tried to identify reasons why I was not a company, that franking credits were both income and tax, since I paid no tax that Labor could not take my income, etc. I was told by Mr McCrudden in Bowen’s office that all my questions were dealt with in the email. I particularly liked the ‘nobody will pay more tax’ statement – but franking credits are both tax and income.

Dear Alan

Thank you for your email regarding Labor’s plan to reform dividend imputation.

Australia is the only country in the world with a fully refundable imputation system. Under Labor’s policy dividend imputation will remain, but cash payments will no longer be made to people who have managed to reduce their tax rate to zero or have paid no income tax. Tax on company profits will continue to be paid only once under Labor’s plans. This is in keeping with the intent of the original dividend imputation system and with Labor’s principles of fairness and simplicity in tax policy.

Labor’s reforms to excess dividend imputation credits will remove a fiscally unsustainable tax arrangement that is seeing billions of dollars in lost revenue, making it harder for the government to fund important services and return to surplus. Dividend imputation worked perfectly well between 1987 and 2000 when cash refunds weren’t sent to people who didn’t pay income tax. Labor will return to that system. When cash refunds were introduced, it was estimated to cost the budget around $500 million a year. The annual cost has now blown out to $6 billion. An ageing population is set to put even further pressure on the budget in the coming years making it harder for future governments to fund important health care services, which is why this is a growing cost the budget can no longer afford.

It is important to remember that our policy means that no one loses a cent of their share dividends, and no one pays more tax. The very generous tax concessions provided to superannuation which allows many retirees to draw an income which is tax-free will continue to apply.

Labor is focused on creating a tax system that works for all Australians and that the burden of budget repair is evenly shared across the community. We also need to ensure that the budget can help support the delivery of world class health and education systems into the future. Whatever your income or wealth in Australia, I want to make sure that if people need to see a doctor or they want to give their children a good quality education, that they can afford it. This is why difficult decisions on the budget are necessary.

Unlike the Abbott-Turnbull Government, Labor is prepared to be honest about its plans well in advance of an election. While I understand not everyone, including yourself, will agree with this policy, it is necessary. If this issue is not addressed it ultimately means that working Australians will have to shoulder a larger burden of budget repair. By being upfront with our plans, people like yourself will have time to seek advice and if desired, restructure their financial affairs to reduce the impact of the policy.

I would also note that a recent Treasury FOI indicated that more than two-thirds of cash refunds to SMSFs are to those whose fund balance per member is greater than $1 million. I also refer to analysis from the PBO that shows the vast majority of individual taxpayers in Australia – 92 percent in 2014-15 – do not receive cash refunds for excess imputation credits.

Yours sincerely,

Chris Bowen MP

 

Cuffelinks has contacted Chris Bowen’s office and confirmed this reply is genuine.

 

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47 Responses to A response from Chris Bowen on franking

  1. Harvey Dickinson March 12, 2019 at 4:50 PM #

    May I point out that that the link you provide to Bowens’ original policy announcement is not connected to the actual original announcement. The original did not include mention of pensioners. Oops, Labor missed them in their “research”. The pensioner guarantee came in the week after the original announcement.
    Who would believe, pensioners with shares. Not so silly when you consider the pension, possibly the bulk of their income, is guaranteed and if the “other” income goes down then the pension goes up.

  2. Alan March 12, 2019 at 9:02 AM #

    Chris Bowen has stated that people who have ‘reduced their tax rate to zero or pay no tax’, will no longer receive franking credit returns. This puts franking credits where they belong – this is tax related issue and the seized franking credits, can only be a TAX.
    Yet Chris Bowen says ‘no one loses a cent of their share dividends, and no one pays more tax’. If this is not an outright lie, it is not actually the truth, nor is the following statement – ’The very generous tax concessions provided to superannuation which allows many retirees to draw an income which is tax-free will continue to apply.’ Governments collect money as fees for ‘some form of service or licence’ or as a TAX – and this is definitely not a fee as I lose something not gain something and get no form of licence – so this also means it is a tax. So why can’t Chris Bowen say it is a tax??
    If all franking credits are to be seized, I and every other person who invests in Australian shares (a benefit to all companies), who is currently and will in the future retire, should know they will pay ‘a 30% company TAX rate’ forever more. This makes it hard to see how retirees will draw a tax-free income and how any retiree, will be free from a future dependence on Government pension payments – only the richest (with >$1.6M forced back into the accumulation phase) will be able to do this!! BUT this proposal, has been reported by Labor to ‘TARGET THE RICH’ specifically by Chris Bowen and Bill Shorten!!??!!
    I don’t understand HOW I can have no tax obligation, according to an existing law BUT may in future have to pay a 30% TAX rate from dollar 1 and still be drawing a tax-free pension, from my own savings (not tax payer’s money).
    This treatment is unlike that for other tax payers who have an $18,000 tax-free threshold and deductions, designed to reduce their tax obligation even further.
    Normally anyone owning shares, which pay franking credits, have the franking credit value added to their income and then their tax obligation due is calculated at this total income. If the combined income and franking credit tax paid is more than is needed to be paid, the difference is refunded but where the tax has come from is not identifiable – personal income tax and tax from franking credits are identical to the ATO.
    WHY should this be different for any other Australian taxpayer? I may be one again shortly, so it seems unfair that –
    1. I have had no input into the ‘over 60’s pay, no tax’ law, as it was in place, before I retired. Under this law I cannot pay tax (even if I wished to)?
    This law MUST be repealed before I need to or can actually pay tax!
    At which time a realistic conversation should begin and a simple, transparent and sustainable tax regime put in place for retirees.
    2. Not every retiree will be paying this TAX, not at all for some and at different rates for others. Why is this the case as – ‘Labor is focused on creating a tax system that works for all Australians and that the burden of budget repair is evenly shared across the community’. Yet another reference to this proposal being a tax!
    As this proposal is directed only at SMSF retirees, there is no even sharing of this tax and it therefore appears to be an act of discrimination and hence, should be unlawful in Australia.
    3. I am paying TAX when both the existing LAW and more importantly Chris Bowen’s statement, (that he sent to me) says – ‘and no one pays more tax’.
    However, every retiree will now and into the future pay more tax, because they will actually pay a 30% TAX. How is this consistent with Chris Bowen’s statements and his supposed intention to ‘target the rich’?
    4. I have no access to deductions required to earn my income, that could reduce the level of TAX I pay, if I am indeed to pay TAX.
    I don’t have access to a tax-free threshold either, if I am to pay this TAX.
    Why am I not treated as an ordinary Australian earning an income? Admittedly this is solely from dividends, but it is still an income. I have worked for a long time and also paid tax but now I am considered too old to work by many employers. So, I have no chance to earn extra money or contribute to my superannuation. My income is fixed BUT the cost of living is rising all the time.
    5. I don’t think that a politician who uses the term ‘excess franking credits’ when he should say ‘TAX’ and then identifies people who don’t pay tax as the target of this proposed law can then say ‘and no one pays more tax’. Clearly some, BUT not ALL retirees will pay this TAX, how is this being consistently honest or am I just a ‘no one’, an old person beyond his usefulness. Why is this dishonesty needed?
    6. I am also at odds with the thought that ‘people like yourself will have time to seek advice and if desired, re-structure their financial affairs to reduce the impact of the policy’. This gives the appearance of being given a real choice, but does it?
    Some SMSF and some managed funds will be able to retain franking credits but definitely not all of them.
    Managed funds charge more fees and give ‘advice’ at a cost but who will guarantee it is in my best interest not the company’s, when the likes of APRA and ICAC haven’t been do a proper job and still may not in the future?
    Am I wrong in thinking that managed funds and their advisers did not do well during the ‘Royal Commission’? Not all were ‘tarnished’ but I don’t believe all were ‘investigated’ either. Would Chris Bowen (or any other politician) like to move their superannuation into a managed fund? If not why should they enact a law to entice/direct to do this?
    7. Surely if some retirees are to pay tax in pension phase and I am not against this if maximum tax of 15% applies. This is the level of tax when contributing or earning income in superannuation accumulation phase and even applies to the >$1.6M amount owned by the very RICH.
    A tax-free threshold and a similar number of increasing tax rates should also apply. as it does in the normal tax system.
    To be fair EVERYONE in retirement should pay according to the same set of rules even those who determine the rules/laws.
    8. Even if Labor win Government, the ‘2 party preferred voting system’, almost certainly ensures a Liberal or a Labor win, depending which party is placed 2nd last and last on the voting paper. The vote is thus clouded as to which policy or group of policies or just the need for a change of Government, moved the vote in this direction.
    The primary vote, for Labor might be indicative of a ‘vote for the proposed law’ BUT since that is not your only policy, not to mention the inevitable pork-barreling, how can we be sure???

    Perhaps we could have a separate piece of paper about ‘the proposal’ when we vote, so people can actually decide on this single issue or have a costly referendum on this single issue. These are the only ways I can see, to be sure that the majority of people support this proposal.
    It would seem that this proposed law with its many different facets, offsets and concessions, will require another level of government to manage the rules and collect the money – there goes (at least some) of the money gained.

  3. Warren Bird March 10, 2019 at 6:27 PM #

    My response:

    Bowen says: Australia is the only country in the world with a fully refundable imputation system.

    My comment: isn’t that fantastic, showing how advanced we are and committed to an even playing field.

    Bowen says: Under Labor’s policy dividend imputation will remain, but cash payments will no longer be made to people who have managed to reduce their tax rate to zero or have paid no income tax.

    My comment: what do you mean by ‘managed to reduce’ their tax rate to zero? That’s a very nasty implication that people who have simply accumulated super as successive governments have permitted and encouraged them to do are somehow manipulating the tax system. Your real motives are on display here, aren’t they?

    Bowen says: Tax on company profits will continue to be paid only once under Labor’s plans. This is in keeping with the intent of the original dividend imputation system and with Labor’s principles of fairness and simplicity in tax policy.

    My comment: that’s not actually true. When someone is on the higher tax rate they will pay extra tax, as imputation requires. That’s ‘double taxation’ of company profits in your terminology. You clearly do not understand the workings of the system. It’s about company earnings being taxed in the hands of the individual shareholders.

    Bowen says: Labor’s reforms to excess dividend imputation credits will remove a fiscally unsustainable tax arrangement that is seeing billions of dollars in lost revenue, making it harder for the government to fund important services and return to surplus.

    My comment: that’s nothing more than an emotive statement unbacked by any factual analysis at all. Essentially any part of the fiscal workings of the government that involve spending money or raising less tax than a higher rate would raise could be said to be ”unsustainable” on that basis. Why single out this one measure? If we have a fiscal sustainability problem then it should be addressed in a comprehensive manner, not by mucking up one part of the system that actually works well. Oh, and by the way, if it’s so unsustainable then why are you allowing heaps of exemptions to it and simply targeting one set of taxpayers, viz those in an SMSF.

    Bowen says: Dividend imputation worked perfectly well between 1987 and 2000 when cash refunds weren’t sent to people who didn’t pay income tax. Labor will return to that system.

    My comment: who says it worked perfectly well? It wasn’t introduced the way it was intended (see my comments many times about the history of the system) and it took a few years before the government fixed that up. Besides, if you really were arguing this on principle you wouldn’t be keeping it in place for charities, pensioners and anyone except a small cohort that you’re targeting in this inefficient manner.

    Bowen says: When cash refunds were introduced, it was estimated to cost the budget around $500 million a year. The annual cost has now blown out to $6 billion.

    My comment: but how much do you raise from those on the higher tax brackets who have to top their tax payments up? From my analysis of the data, the system essentially generates a little bit more in tax revenue than it would if you just had the 30% company tax rate and no imputation credits for anyone. Also, how much of that $6 billion is refunds paid to those who will continue to be exempt. Please stop bandying about a figure as if this is helpful analysis of the situation.

    Bowen says: An ageing population is set to put even further pressure on the budget in the coming years making it harder for future governments to fund important health care services, which is why this is a growing cost the budget can no longer afford.

    My comment: We’ve been looking at that situation for years. It requires a comprehensive approach to fiscal policy to make sure that all bits of it are working well. This measure is piecemeal and not part of a genuine attempt to address the long run fiscal pressures.

    Bowen says: It is important to remember that our policy means that no one loses a cent of their share dividends, and no one pays more tax.

    My comment: this last bit is incorrect. Those who lose their refunds are losing refunds of tax paid by them before the income reached them. So they are paying tax on earnings even though they have a zero tax rate.

    Bowen says: The very generous tax concessions provided to superannuation which allows many retirees to draw an income which is tax-free will continue to apply.

    My comment: well la de da, that’s comforting. Except again it’s not true for those who now will pay 30% tax on a portion of their income. If you have a problem with them being on a zero tax rate then change that, but leave imputation alone. Oh, and does saying that represent a promise that you won’t try to do something else to reduce those ‘generous’ tax concessions in the future? Didn’t think so. The fact that you think they’re generous reveals your hand, sir.

    Bowen says: Labor is focused on creating a tax system that works for all Australians and that the burden of budget repair is evenly shared across the community.

    My comment: so tell me again how singling out relatively lower income retirees in this manner represents things being ”evenly shared”? Again, I ask for a comprehensive review of fiscal arrangements if that’s what’s needed to address an overall fiscal issue. Besides, this is just a statement of political idealism, not a genuine policy commitment. Haven’t you seen the meaningless ads that your opponents have all over the place saying exactly the same thing?

    Bowen then says some other stuff that’s not worth commenting on before getting back on topic:
    I would also note that a recent Treasury FOI indicated that more than two-thirds of cash refunds to SMSFs are to those whose fund balance per member is greater than $1 million.

    My comment: so? once that balance hits $1.6 million they’re no longer tax free. And neither $1 million nor $1.6 million accumulated in a fund by the end of someone’s working life makes them rich! For goodness’ sake, the days when ”Old Jed’s a millionaire” enabled him to move to Beverly Hills are long gone.

    Bowen says: I also refer to analysis from the PBO that shows the vast majority of individual taxpayers in Australia – 92 percent in 2014-15 – do not receive cash refunds for excess imputation credits.

    My comment: your point being? Surely that just shows that this isn’t a big issue for the budget and you’re singling out a small cohort – those you wrongly think are rich – and accusing them of rorting the system (refer to one of my earlier comments).

    My final comment: I am still waiting for someone, anyone, to engage with the analysis I wrote on this months ago and convince me I’m wrong.

  4. Graham March 10, 2019 at 8:06 AM #

    Like all respondents here, I get some entitlement to claim refund of unused franking credits under the current regime. I get the entitlement because my taxable income is below the minimum income threshold for seniors. Others extend that threshold by having high levels of investment income attributed to pension fund income within their Superannuation fund.
    We already get a substantial tax benefit compared to non-retirees/superannuation. Still we want more, refund of unused franking credits, minimal compared to tax saved on non-taxable income earned in pension funds and tax-exempt income.

  5. Don Macca March 9, 2019 at 8:24 PM #

    From Labor web site: 180604-updated-factsheet-dividend-imputation.pdf

    “ENDING CASH REFUNDS FOR EXCESS IMPUTATION CREDITS
    Labor is cracking down on a loophole that gives tax refunds to people who have a lot of wealth but don’t pay any income tax.The top 1 % of SMSFs receive a cash refund of $83,000 (on average) (based on 2014-15 ATO data).”

    Knowing the, % franking to fund size ,we can calculate, average fund size.
    I have access to the figures for a multi $m fund over the last four years. Credits received as a % of fund size were 1.23% 1.72% 1.56% 1.90%. Lets take the average 1.59% and apply it to SMSF in the pension mode.

    For the Tax year ended 2015 $5.2m fund would receive a cash refund of $83,200. No tax needed to be paid.

    For the year just past(2018) the fund would have received a cash refund of $83,200. But would need to pay 15% tax on the income of the $3.2m part. A taxable income of 9% would be about average The over $1.6m would have an income of $288.000, 15% tax would be $43,200.

    Chris Bowen plan is will deny franking credits to many SMSFs who are in the retirement.
    The following will NOT lose their credits those ; in APRA funds, receiving government pensions. The Chris Bowen wealthy on their balance over $1.6m..

    It;s now tax year ended 2020, Labor has won, and has now put it’s promises into legislation.The only franking credits lost is on the $1.6m The portion in excess will get credits & pay 15% tax as before. The lost credits could amount to $25,440. The amount is likely to be less as most franked stocks could be held in the over $3.26m. section.

    In another article on Cuffelinks (How super became a poor deal for SMSF pensioners March 6 2019)
    Jon Kalkham has posted a reply to the author. He states.
    “What if we said that the aim of super is to supplement or replace the age pension and that it is determined that $1.6million per person is sufficient to have a comfortable retirement. In that case, all money in excess of $1.6m needs to be removed from super on retirement. We could go further, and ban accumulation funds in retirement because there is no obligation to draw down on them and their only purpose is to create a legacy for the estate. In that case the income from that capital in excess of $1.6m would be subject to normal tax, not just 15%.”
    Sometimes the simplest solution is the best.
    Chris lets get fair dinkum If your aim is to hit the wealthy you should adopt this suggestion.

  6. Les March 9, 2019 at 2:37 PM #

    Leaving ethical questions of fairness in the taxation system for other people it does strike me as a dud piece of political strategy?

    I don’t think franking credit rebates are an issue top of mind for most Australians and the only Australians who do care a lot about it are not going to be in favour of it.

    • Greg March 11, 2019 at 9:47 AM #

      With the 2PP vote widening to 54 Labor and 46 LNP and the LNP primary vote 36%, your observation is spot on Les.

  7. Noel March 8, 2019 at 7:57 AM #

    If the voting public simply understood that a “franking credit” is just tax already paid by a company on behalf of a shareholder, just like PAYG TAX is paid by an employer.
    and
    That refundable franking credits are simply a return of excess tax paid as assessed at the end of the financial year, the same as PAYG TAX is refunded, then the Labor Party would not be able to continue exploiting the misunderstandings about franking credits that generally exists to argue their case.
    They are simply using all this terminology surrounding franking credits to confuse and exploit the situation. What they are proposing is the height of inequity.

    • Greg March 8, 2019 at 9:57 AM #

      I agree that language is a significant issue here – especially when communicating to those not affected.

      Perhaps we need to focus on the example of the “Franked dividend” and describe it is a dividend which has “some” tax already deducted.

      At financial year end, the ATO recognises the dividend plus the deducted tax as taxable income.

      When tax liability is calculated, any overpayment of tax is refunded.

      To put it another way: For those receiving franked dividends, Labour’s proposed policy will
      – keep taxable income high for taxation/Centrelink/government-benefit purposes
      – reduce actual in-hand income by refusing to refund any overpaid tax

    • Paul Kibble March 8, 2019 at 6:52 PM #

      “and no one pays more tax.”
      UNTRUE.
      We will pay 30% more tax on our dividend income.

  8. Steven Diehm March 7, 2019 at 8:50 PM #

    Have you read the recent Chris Bowen press release CUTTING FRANKING REFUNDS IS A STEP TOWARDS FAIRNESS that is available on his website.

    Bowen has very cleverly crafted statements which mask the real unfairness of Labor’s plan. He labels every retiree who doesn’t get the pension as ‘rich’.

    He does not address the fact that both for the individual tax payer and for the SMSF member these changes are ‘regressive’ tax measures. Those at the bottom lose a higher percentage of their annual living income. i.e. the more you earn the less you lose.

    Bowen continues his claim that ‘no tax is paid’ – completely ignoring that tax was paid by the company and is added back on (grossed-up) by the individual when declaring the income;

    For example under current legislation – A person receives say a $700 dividend on their shares. The shares come with a 30% tax paid (franking credit). Money received is $700 but Taxable Income declared is $1,000. When the person lodges their tax return, the dividend is ‘grossed up’. The individual declares that they have received $1,000 dividend income ($700 + $300 credit = $1,000).

    Currently, the Tax Office records the $1,000 as taxable income and allows for tax paid of $300. If the person is under the Tax Free Threshold then the $300 is refunded by the Tax Office. So, by removing the refund Labor’s plan removes the retirees Tax Free Threshold hitting those at the bottom of the ‘rich list’.
    Very few people in the media, even respected journalists, understand the concept of the ‘gross up’. If only people could grasp that concept they would understand the big fallacy in Chris Bowen’s argument when he says that we “can’t give refunds to shareholders who haven’t paid tax in the first place’.

    • Dudley March 8, 2019 at 1:20 PM #

      In other news, ‘Newspeak is the official language of Oceania’.

  9. Philip Carman March 7, 2019 at 3:12 PM #

    You poor tax avoiders…
    You have two choices: pay your fair share … OR
    if you really don’t want to contribute to society, just shift your shares to a good platform super fund which will collect the cash refund for you. It beggars belief that you can’t work this out and yet still cling to being trustees of your SMSF – really?
    Most who have an SMSF in pension mode will need to exit sooner rather than later due to costs, inconvenience and compliance issues, anyway, so this is actually an opportunity to test the better, cheaper and more convenient waters ahead of time. Accountants won’t like it, but life is full of change so they’ll have to get over it, just as everyone else does. When the facts change sensible change their tack. Others cling to their beliefs and cry “no fair”…
    By all means leave your property and bonds in the SMSF, but get your shares out, try the alternative and then make the changes you will require anyway over next few years.
    Life is an IQ test as well as a social/emotional (EQ) test and what many are writing here suggests they are failing both.
    Having been in the Money Business for over 38 years, I tire of all the preciousness and self-interest disguised as political spin and confected outrage.

    • Michael March 7, 2019 at 11:37 PM #

      Philip, you need a break after 38 years! Whilst SMSFs will be affected, and many people are making arguments in relation to SMSFs, this policy in fact does not mention SMSFs, it applies to all taxpayers. My argument against the policy has nothing to do with SMSFs and in fact I believe that any argument put to Labor should be couched in broader terms. For example, this policy will adversely affect a 90 year old whose income from shares built up over the years will fall considerably due to her loss of franking credits (remember that old people today never had super, so they saved typically in property and shares). Please explain why she should look to a new strategy at that age! There are many elderly people in this boat, and many do not get any Age Pension (so are not exempt from the policy). I would support the policy if Labor established it so that existing arrangements were unaffected, which is only fair in my opinion; but Labor wants lots of money so they are wielding the big, ugly stick. If they get into Government, I bet that they will have huge ongoing protests and they will probably relent in some way – because, let’s face it, all they really want is to get into POWER and then the rest is irrelevant.

      • George Hamor March 9, 2019 at 3:42 PM #

        Mr Carman
        May I ask exactly what sort of “money business” you were in for 38 years?

    • Dudley March 8, 2019 at 6:33 AM #

      “pay your fair share”:

      30% on some dividends and 0% on other dividends and other income . That’s not sensible or fair. The present taxation system is better than ill-considered Bowen’s proposal.

      “just shift your shares”:

      How will private company shareholders do that?

      • Dale March 9, 2019 at 12:07 AM #

        Dudley, as George advised below, your contributions don’t even make any sense to the 47% of voters that will be advancing their cause against Mr Bowen’s franking credit policy come Election Day, let alone the 53% we are trying to win over to retain our retirement income.

      • Dudley March 10, 2019 at 11:16 AM #

        “30% on some dividends and 0% on other dividends and other income”:

        How is it so with Labor’s proposal?

        Where franking credits is greater than tax assessed, and tax assessed is $0 or greater:

        That portion of dividends:
        *. associated with the franking credit ‘excess’ has a tax rate of 30%,
        *. greater than the tax free threshold has a tax rate more than 0%,
        *. less than the tax free threshold has a tax rate of 0%.

  10. Sean Southwell March 7, 2019 at 2:55 PM #

    Bowen deliberately avoids addressing ANY of the arguments why his tax is inequitable.
    If it’s unfair and unsustainable that retirees continue to receive franking credit refunds, why will all those, regardless of wealth, who have their money in an industry fund get to keep theirs?
    When individuals are required to declare the grossed up dividend in their income, how can Bowen say the withheld company tax is not tax paid by those individuals?
    You wont get an answer to any of the pertinent questions, because there is no answer that doesn’t leave Bowen looking like a crook. The dishonesty is absolute.

  11. Richard March 7, 2019 at 2:40 PM #

    Thanks to an ASA colleague it should be pointed out to Mr Bowen that associated with the introduction of the GST was the “A New Tax System (Bonuses for Older Australians) Bill 1998”. On p 1097 of Hansard dated 2 Dec 1998 the second reading of the bill states, “This bill recognises the special circumstances of older Australians with savings and investments, including those who receive income from superannuation pensions and annuities.
    In addition to other tax measures associates with the new tax system, such as the income tax cuts, increases in income support payments, refundable imputation credits and increased tax rebates, this bill provides further compensation to help maintain the value of savings and retirement income of senior Australians”.

  12. Mike March 7, 2019 at 1:14 PM #

    A strange callous response which will be cold comfort to families whose income will drop dangerously lower by $15000 pa,more or less ,if Bowen takes over.
    How can this answer be considered even remotely appropriate to this troubled family.
    A friend also emailed Bowen respectfully suggesting that perhaps people with pensioner concession cards ,but not receiving pensions,could be exempted,or otherwise a credit threshold of $10000-15000 could hopefully apply,therefore exempting the lower income retirees.
    Of course, no reply,Bowen couldn’t care less,his cold attitude attitude says it all! This guy never even blinks!

    • James March 7, 2019 at 8:45 PM #

      If someone’s actual income, not taxable income, there’s a huge difference, is 15,000pa, then they won’t be buying shares. Anyone knows that.

      Often means they are are an decent income from their super fund, which is tax free and doesn’t have to be declared, but get 15,000 in dividends mean their taxable income is 15.000, not 15,000 plus what they withdrew from their fund. Let’s get that right. Just the greedy one’s that still expect excess credits.

      Why should people who don’t pay tax a tax refund, that’s crap and unsustainable. No other country in the world has that system and was just a Howard giveaway to but votes. Country has a big debt that needs paying off.

      • Dudley March 8, 2019 at 6:49 AM #

        “If someone’s actual income, not taxable income, there’s a huge difference, is 15,000pa, then they won’t be buying shares. Anyone knows that.”:

        For all we know, they could have little capital and be taking extra risk to generate extra income.

        “Why should people who don’t pay tax [receive] a tax refund”:

        Because tax paid by their company paid was credited to them. Just as tax paid by an employer is credited to an employee. Tax refund with no tax paid is impossible – ATO is no Centrelink.

        “No other country in the world has that system”:

        To their loss. It results in all income taxed at the same rate for the same individual.

        “Country has a big debt”:

        Damaging an imputation system is foolish method of retiring debt.

  13. Johnny Up March 7, 2019 at 1:10 PM #

    And still the pollies mess around with the superannuation system. I thought that it was agreed to years ago that they would leave it alone. The main issue is that not one government cannot live within its means because they are forever using the public’s money to get the keys to the office. BS is currently choosing particular groups on which he can smother largesse to lock in his votes. It is way past time that pollies were paid a small living wage and then receive a small “bonus” at the end of their term depending on how much money they have lost.

  14. Richard March 7, 2019 at 12:56 PM #

    If Labor’s proposal becomes law my superannuation pension phase income will reduce by 26% (ie my tax rate goes from 0% to 26%!). If I was a PAYG tax payer receiving the same amount (approx $60,000 pa) I would pay 18% tax. How is this proposal fair? Also lost in this debate is the issue of constantly changing the superannuation goalposts when investing for your retirement is inherently a long-term project.

  15. John March 7, 2019 at 12:43 PM #

    “Arguments in favour of abolishing franking credits that ignore the ‘double taxation’ principle tend to rely on flawed logic. Specifically, proponents of abolishing franking credits invoke argumentum ad populum stating:
    “Australia is the only OECD country with a fully refundable dividend imputation system”2
    Other countries have different taxation policies and that does not imply is that Australia’s is wrong. Strong arguments should be grounded in the underlying tax principles rather than a simple appeal to what is common. ”

    From the Rice Warner submission to the Franking Inquiry, There is in fact a very strong argument to say that Australia’s imputation system is the best way to cope with our approach to vertical equity and the use of zero tax bands. And if we don’t like that, then reform it properly. In the meantime implement proper imputation.

  16. Rob G March 7, 2019 at 12:40 PM #

    By all means maintain the rage and vote Liberal, however could I suggest you also prepare for a change in Govt?

    There are clear strategies to avoid this franking theft the most obvious being to own growth stocks, probably with offshore exposure, that pay little or no franked dividends. There are a few of those in our big cap space. Plenty of other income “surrogates” that pay unfranked dividends. The alternatives to franked dividends are out there – whether those names are beneficiaries of “money moving” only time will tell but maybe.

    Then remember the reason you set up a SMSF in the first place – it gave you control, it gave you flexibility all at a cost dramatically less than Industry or Retail Funds. None of that will change, so I believe it is time to calm down, get organised, do not cut off your nose to spite your face and Bowen will get exactly what he deserves – next to no revenue and an angry electorate

    • Dudley March 7, 2019 at 1:21 PM #

      “There are clear strategies to avoid this franking theft”:

      How do I sell my 1 share, and my wife’s 1 share, in our private company?

      It contains accumulated franking credits which, should Labor have its way, would only be valuable to an new shareholder with a tax rate greater than the company tax rate of 27.5%.

      A buyer can get that deal with listed companies. They would pass unless I offer a discount on the accumulated franking credits of more than (1 – 47%) = > 53%.

      • Jane March 7, 2019 at 2:06 PM #

        Rob G, yes we remember why we set up our SMSF, for the reason we can be flexible, change and adapt, BUT,
        this ALP B. S. proposal is all about UnFairness. The more it is debated in ALL media the clearer the UnFairness will be revealed.

        Why should someone earring up to $120,000 (Paye tax and dividends,) end up paying less tax than a self funded retiree
        trying to generate an income of $35000 – $60,000 per couple.
        These will be the hardest hit. There is NO fairness in the ALP proposal.

  17. john WALKER March 7, 2019 at 12:05 PM #

    Bowen and his labor mates are conflicted. The real reason is to drive people who have not already been driven via legislation towards industry funds with their “great returns” and huge holdings in unlisted assets to ensure future cash flow which then allows the industry funds to:-

    1. hold huge amounts unlisted assets avoiding daily pricing

    2. transfer directors fees and dividends from union shareholdings in the industry funds into the Unions

    3. fund the labor party

  18. Loz March 7, 2019 at 12:05 PM #

    We keep hearing this argument that 92% of taxpayers won’t be affected, so the policy is okay.

    But that doesn’t make it okay.

    Suppose we introduce a policy that everyone with their birthday in September will be required to pay double their normal rate of tax each year. That would not affect 92% of taxpayers so the policy is okay.

    That would not be okay either. And there would be a black market in fake birth certificates.

  19. John March 7, 2019 at 12:00 PM #

    Beyond the franking debate…

    A family trust of a plumber distributes $18,200 to his wife who does the accounts, under BS and Bowen she will pay an additional $5460 in tax because she is no longer entitled to a tax free threshold and her minimum tax rate has been set by BS and Bowen at 30%. If she had been employed at Bunnings and earned $18200 she would pay no tax.

    BS said in past: “Discretionary trusts are a legitimate feature of how Australians conduct their financial affairs “ and not “any form of tax avoidance”

  20. Phil March 7, 2019 at 11:51 AM #

    I still haven’t heard a credible justification for this policy. All arguments so far, especially from those proposing the policy, seem to betray a lack of knowledge of tax, dividend imputation & superannuation structures. Even the political justification (essentially the politics of envy) doesn’t work as many low income people will be hit hard while many rich will be untouched.

    But the thing I find most irritating is the underlying assumption that the policy will have no effect on people’s behaviour. This assumption is obviously wrong and therefore the tax revenue projections are obviously wrong. It’s even possible that the ultimate effect will be to reduce the tax take.

  21. Marg March 7, 2019 at 8:12 AM #

    Why is there no discussion about putting a cap on credits received to protect low income retirees. I spoke to a Labor candidate in a regional area who said they are lobbying federal Labor to do this. I hope that the senate cross bench will work to amend this legislation if Labor do not win full control of the senate.

    • Dudley March 7, 2019 at 10:53 AM #

      To show how arbitrary:

      Why is the company tax rate 30% and therefore franking credit (a withholding tax) 30% of gross dividends yet withholding tax on interest is 0% (where TFN supplied)?

      Are shareholders ‘tax dodgier’?

      If the withholding rate on dividends was 0%, like for interest, the ‘problem’ of franking credits would instantly disappear and Labor would not have a franking credit refund policy as there would be no over paid tax to refund – only under paid tax to pay and collect.

  22. Noel March 7, 2019 at 8:04 AM #

    Please refer to this recent article from the AFR which highlights how the politically weak the easy targets will be exploited by Labors proposed policy on franking credits

    https://www.afr.com/news/economy/labors-franking-policy-is-theft-from-the-politically-weak-20190306-h1c1pz

  23. Stewart Marney March 7, 2019 at 12:01 AM #

    There is a blatant lie in this reply when it is stated that cash payments will no longer be made to people who have paid no tax . Government pensioners , some SMSFs , charities , The future fund , unions , universities , political parties and others are to be allowed to keep receiving their franking credit refunds even though according to Labor they have paid no tax .

    Under the ” Keating ” model there was no such thing as a franking credit refund so every time they use the argument that they are returning to the ” Keating ” model they are telling a blatant lie .

    • Michael March 7, 2019 at 5:07 PM #

      I agree entirely – “selective memory” by Labor! Or to be more precise, lies, and they know it. This needs to be raised with people like Bowen when interviewed by organisations like 7.30 ABC but because the interviewer does not know enough about it the politician gets away with it. ABC is too left to care – maybe FOX will take it up?

      Maybe Shorten will have his “birthday cake/Hewson GST” moment if a clued-up journo asks this basic question – “if it’s so wrong to pay cash refunds to those who have not paid tax, why are you exempting unions and political parties (to name a few)?” Let’s see how Shorten or Bowen stumbles over that. Any decent journo should be able to rip them to shreds on that issue. Liberal Party – where are you, are you wording up journos on this? If not, you will lose this election – if you want a chance, start being more pro-active!

  24. harry March 6, 2019 at 11:33 PM #

    Labor’s policy was so well thought out that within 2 weeks of announcement they had to patch in the Pensioner Guarantee.
    “I would also note that a recent Treasury FOI indicated that more than two-thirds of cash refunds to SMSFs are to those whose fund balance per member is greater than $1 million.”
    Yeah Chris, that’s not because they are extraordinarily wealthy, it’s because they are the ones near to retirement or already retired. It seems a surprise to Mr Bowen that the bulk of the Australian population is still growing their super, so pointing out this statistic as if it were some sort of outlier just shows that he either has no understanding of what he is talking about of that he is deliberately using a statistic to lie. Neither of these is a recommendation for trusting him.

    The same applies to their statistics about NG, 80% of the benefit goes to wealthy people (as defined by them). Their change – remove deductibility of NG losses for new purchases of existing houses against wages – will mean that the statistic they use for justifying they changes will in fact rise. Since the only people able to deduct NG losses on new purchases of existing houses will be those with excess investment incomes, rather than wage dependent investors. Labor’s policy actually advantages the rich.

    And then the publicly funded RMIT-ABC factcheck produces a hilarious fact check on CG changes. Claiming that the government statement that 60% of GC claims are people with incomes under $80k. The “factcheck” uses taxable incomes to prove that people who make small CG profits have small incomes and those that make large CG profits have large incomes. That’s because they used the taxable incomes of the year they made the CG profit. They’ve proven nothing.

    If a teacher on $80k, sells an asset they’ve been holding on for a long time for a $200k profit, then, after the CG discount, they’ll declare a taxable income of $180k, so the “factcheckers” will claim they are a high income earner, of course next year they’ll be back to $80k.

    The stench of Labor and their boosters’ deceptions is overwhelming.

  25. Christopher O'Neill March 6, 2019 at 11:07 PM #

    If Labor wanted to be honest about this, they would say that they think dividends should be taxed at a minimum equivalent rate of 30% (or slightly lower in some cases) when people can’t use all their franking credits for assessed tax.

    But they aren’t honest and it’s appalling that they think they need to be dishonest to succeed.

    Incredible that they would say “Labor is prepared to be honest about its plans” when they are anything but. Sheer hypocrisy.

  26. Dudley March 6, 2019 at 9:33 PM #

    “It is important to remember that our policy means that no one loses a cent of their share dividends, and no one pays more tax.”:

    The shadow treasurer does not know the law relating to taxation of dividends; can not recognise gross dividends.

    On each $1.00 of gross dividends my company pays $0.275 company tax, recorded as franking credits, imputed to me as income tax credits when my company reports to ATO the payment of dividends to me.

    Currently I receive $0.725 from my company and $0.275 refund of tax credits from ATO.

    Labour would keep $0.275 from me.

    My tax rate currently 0% would be 27.5%.

  27. Dudley March 6, 2019 at 9:06 PM #

    “Australia is the only country”: Sanctuary.

    “cash payments will no longer be made to people who have managed to reduce their tax rate to zero or have paid no income tax.”: Why pick on dividends alone? Minimum 30% withholding tax and no refunds for over paid wage, interstate, rent or other income tax would swell revenue much faster.

    “This is in keeping with the intent of the original dividend imputation system”: The intent was same tax rate for all income for same individual. Labor’s intent is something else.

    “Labor’s principles of a fairness and simplicity in tax policy.”: Policy does not pass own test.

    “fiscally unsustainable tax arrangement that is seeing billions of dollars in lost revenue”: False. Billions more made from dividends taxed in individual’s hands at greater than company tax rate.

    “return to surplus”: Already happening; revenue > expenditure. Revenue increasing 6%, expenditure 3.5%.

    “cash refunds weren’t sent to people who didn’t pay income tax”: Impossible – ATO is no Centrelink. Tax must be paid before it is refunded. whether on dividends, wages, interest, rent, … .

    “An ageing population is set to put even further pressure on the budget”: Let them save and self support.

    “growing cost the budget can no longer afford”: A manager of modest skill would have no difficulty finding 1% of savings in expenditure. A manager of little skill would first seek to raise tax. One of no skill would propose inefficient tax..

    • George March 6, 2019 at 11:38 PM #

      Dudley, this rant is not helpful to the cause. These are the ramblings that disengage the cohort of voters we are trying to engage come election time. It is important to stay on topic and keep the focus and not wander to semantics. We as a minority vested group have a lot to lose.

      • Dudley March 7, 2019 at 7:07 AM #

        “stay on topic”:

        Bowen’s email contains falsehoods and absurdities.

        Some might want to consider whether such would affect their vote.

  28. David March 6, 2019 at 7:56 PM #

    Please form an orderly queue. There is plenty of time to critique the honourable member for McMahon’s response. Keep the punches above the belt.

    • J.D. March 7, 2019 at 12:50 AM #

      “Please form an orderly queue. There is plenty of time to critique the honourable member for McMahon’s response. Keep the punches above the belt.”

      Why should people keep their punches above the belt when he hasn’t with his manipulative half-truths?

      • David March 7, 2019 at 8:24 AM #

        So J.D, by your own admission, you wish to retort Mr Bowen,s position with below the belt manipulative half truths. That is playing into Labor’s hands. Keeping the argument structured and factual is our best chance to garner enough support come Election Day.

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