# Dividend Imputation Under Threat



## Julia (5 April 2009)

An article by Noel Whittaker today suggests that there is serious consideration being given to scrapping dividend imputation.  As an alternative company tax would be reduced to 25%.

Obviously this is a very unwelcome proposition to all investors, especially retirees.

Mr Whittaker is recommending anyone concerned about this should register their views with their Federal MP, and send a email to:

AFTSubmissions@treasury.gov.au

Let's all take a couple of minutes to do this.  If there is sufficient public backlash it won't happen.


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## Garpal Gumnut (5 April 2009)

Julia said:


> An article by Noel Whittaker today suggests that there is serious consideration being given to scrapping dividend imputation.  As an alternative company tax would be reduced to 25%.
> 
> Obviously this is a very unwelcome proposition to all investors, especially retirees.
> 
> ...




Thanks for bringing that to our attention Julia, if its true it will hit the self retired and super funds significantly.

gg


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## drsmith (5 April 2009)

Ken Henry is looking at it as part of his tax review.

http://www.theaustralian.news.com.au/business/story/0,28124,25099742-5013408,00.html
http://petermartin.blogspot.com/2009/02/why-not-axe-dividend-imputation-henry.html
http://www.businessspectator.com.au/bs.nsf/Article/A-system-saviour-$pd20090316-Q7736?OpenDocument

Ken Henry's speech from Feb 23

http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/speeches/02.htm


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## Prospector (5 April 2009)

Then I wonder what they will do with situations where there are still undivested dividends - profits that have not yet been distributed via dividends where company tax has already been paid.  In our company we have thousands of $ of dividends that we have left in the company - our accountant has said it is like the ATO owe us the money we have paid in company tax.

Better find out asap.  Thanks Julia, and yeah, it sucks!


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## Trevor_S (5 April 2009)

Julia said:


> An article by Noel Whittaker today.




It's been in the newspaper several times over the past months as part of the Henry Tax Review.  I disagree with the logic behind getting rid of it.  My understanding for their logic in getting rid of it is that in this global world, they need to make the tax structure competitive to get investment from overseas, so tax them less and tax local investors more ? Screw that  . you can reward local investors with a imputation credit but still tax off shore investors at say 25%.

Personally I think they should scrap company tax altogether, all dividends from companies should then be banked electronically into an Australian Bank Account.  Those account holders that have no TFN are taxed at the maximum rate, the rest that offer a TFN pay tax at our marginal rate (which is effectively what we do now with franking credits).  This does away with the need for imputation credits, makes it easier for personal investors, (no need to keep track of franking credits) and saves reams  paper and dozens of paper shufflers in companies as they don't need to remit company tax any longer and investors ie much simpler and tax neutral ie the investor pays all the tax on behalf of the company they get the "franking credits" as cash  

Double taxing is one way to raise extra revenue I guess, which will be needed to fund the largess of the current idiot Government.


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## Prospector (5 April 2009)

Trevor_S said:


> Personally I think they should scrap company tax altogether, all dividends from companies should then be banked electronically into an Australian Bank Account.  Those account holders that have no TFN are taxed at the maximum rate, the rest that offer a TFN pay tax at our marginal rate (which is effectively what we do now with franking credits).  This does away with the need for imputation credits, makes it easier for personal investors, (no need to keep track of franking credits) and saves reams  paper and dozens of paper shufflers in companies as they don't need to remit company tax any longer and investors ie much simpler and tax neutral ie the investor pays all the tax on behalf of the company they get the "franking credits" as cash




The thing is, no-one knows what their marginal tax rate is until all the deductions have been calculated, especially those with investment properties.  So you would still need the paperwork trail to return excess tax paid; or conversely, pay the ATO extra tax.


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## drsmith (5 April 2009)

An alternative to abolishing dividend imputation would be to go back to the pre-2000 imputation system where franking credits that were in excess of an individuals total tax payable were lost. This would ensure that the government collects a minimum of the corporate tax rate from profit declared as dividends without double taxation.



> *Refund*
> 
> Franking credits are (as of 2000) "refundable" in the sense described in the tax credit article. This means that not only can they reduce a taxpayer's total tax liability to zero, but any excess is refunded. For example an individual with income below the tax-free threshold ($6000 in 2006) pays no tax at all and can get franking credits back in full as cash, at the end of the year.
> 
> ...


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## Julia (5 April 2009)

drsmith said:


> An alternative to abolishing dividend imputation would be to go back to the pre-2000 imputation system where franking credits that were in excess of an individuals total tax payable were lost. This would ensure that the government collects a minimum of the corporate tax rate from profit declared as dividends without double taxation.



That would unfairly penalise retirees drawing an allocated pension at which stage income is not taxed.  Most of these pensions are constructed taking account of the income from the franking credis.


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## drsmith (6 April 2009)

Any individual change in isolation is going to create winners and losers.

The change in 2000 resulted in a situation where company profits (or part thereof) would effectively be effectively untaxed thereby undermining the corporate tax base. This was not the original intent of dividend imputation.


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