The Federal Opposition Labor Party intends denying franking cash credit refunds except for welfare pensioners. This subject has become one of the most heated debates on our website. Although it relies both on Labor winning the next election and then passing the legislation, the most recent Newspoll for two-party preferred voting has Labor ahead of the Coalition by 52-48. However, PM Malcolm Turnbull remains well in front of Bill Shorten as the ‘better PM’.
A reader of Cuffelinks forwarded this email exchange with Shadow Treasurer, Chris Bowen. The reader’s identity has been removed because it reveals personal details.
Email to Chris Bowen, 21 May 2018
I have sent a letter and email previously expressing my outrage at the proposal but have never had any reply, so third time lucky.
My query is;
My understanding is that the only people who will be able to claim the cash refunds of franking credits will be those who were already in receipt of a Centrelink full or part pension on the day of the announcement.
I also understand that anyone not qualifying as a Centrelink pensioner on that date will, even if in future years they do qualify for a Centrlink pension, never be able to claim the cash refunds.
My wife and I have a SMSF which is our only source of income and we are both in the pension drawdown phase of that fund.
The combined balance of the fund is around $920,000, 80% of which is invested in shares and last year generated $14,000 of franking credit cash refunds.
We have a Commonwealth Seniors Health Card and a Pensioner concession card and receive the Seniors supplement.
The prospect of losing so much income is stressing me beyond belief so any clarification would be gratefully appreciated.
The policy was apparently aimed at the 1% of SMSF’s who have been, based on out of date 2014 figures, claiming up to $80000 of cash refunds. We hardly fit into that category and anyhow these really rich people will, under your proposal, still be able to claim refunds as since 2017 they are now paying 15% tax on fund balances over $3 million.
Once again the middle class battlers get screwed.
Thank you for reading this and I await your answer to my question.
Reply from Chris Bowen, 5 June 2018
Thank you for your email.
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. While I understand not everyone will like it, it is necessary and Labor is prepared to be honest about our plans in advance of an election and not surprise people afterwards.
Budgets are about priorities. And to get the budget back to surplus difficult decisions need to be made. And yes, making the public case to take something off someone can be difficult, but federal Labor believes that the policy case for reforming refundability and excess imputation credits is a strong one, that it’s absolutely the right thing to do.
We have said that we’ll consult with the Australian Taxation Office, Treasury and tax experts on the implementation of this policy. However, we have no plans to make changes to the announced policy.
Chris Bowen MP
Federal Member for McMahon
Email to Cuffelinks from the reader, 5 June 2018
Here is the reply I have just received from Bowen’s office.
He does not accept than the very wealthy whom the plan is supposedly targeting will not be affected but that the low level SMSF of middle class Australians will be.
They have no intention to alter the proposal which is incredibly discriminating against battlers. They appear proud of the fact that they will stuff up the retirement of 1000’s of retirees.
[Editing note: Although Chris Bowen did not correct the statement, our understanding is that Labor’s ‘Pensioner Guarantee’ will apply in future, exempting nearly all welfare pensioners from the policy. It is pensioners within SMSFs who have the 28 March 2018 deadline].