# How to avoid Shorten's plan to abolish the refund of excess franking credits



## bigdog (10 April 2018)

This article is from the April 8 issue of The Age Digital Edition. To subscribe, visit https://theage.digitaleditions.com.au/. 


Noel Whittaker  

LABOR'S CHANGES A TAX ON WIDOWS

Labor’s latest attack on franked dividends is not a tax on the wealthy, it is a tax on widows. 

Let me show you step-by-step . The imputation system, which avoids dividend income being taxed twice, will stay in place. What Labor proposes is to abolish the refund of excess franking credits. The only way you can have an excess franking credit is to have a low income. Therefore, the only possible targets are low-income earners, and superannuation funds, where the tax rate varies between zero and 15 per cent. 

But there will be no tax to be collected from large retail funds and industry funds, as they can spread the imputation credits over all their members: nothing for Labor here. 

And they have promised to exempt all age pensioners: nothing for Labor there either. 

So let’s think about who is left, on a case-by-case basis. 

Self-managed super funds in pension mode with two members holding a total balance of less than $3.2 million 

They can be seen as the prime target, because clearly all their excess franking credits will be lost under Labor’s proposal. But that is simply solved. 

One option is to close the SMSF and roll the balance to a large retail or industry fund as mentioned above. The other option is to cash in their entire holding of Australian shares, which can be done tax-free , and roll over the cash now freed up to a second superannuation account with one of the big funds, choosing Australian shares as their preferred asset class. 

With this strategy, there is still nothing for Labor: the SMSF trustees can make any investments they choose – avoiding Australian shares – in their self-managed fund, and the pooled fund will invest in Australian shares for them, while optimising their mix for the current tax situation. 

Self-managed superannuation funds with large balances 

This could appear to be an easy target, but the Liberals got there first . Think about a portfolio of $10 million, which has a fairly standard asset allocation of cash at 20 per cent, Australian shares at 35 per cent, international shares at 25 per cent and property at 20 per cent. The annual income would be $390,000, including franked dividends of $140,000, on which franking credits are $48,000. When you gross up the income for the franking credits, the taxable income of the fund becomes $438,000. 

Before the Liberals changed the system in July, the franking credits of $48,000 would have been refunded. But because the fund is 70 per cent in accumulation now, the tax payable by the fund becomes $46,000. Imputation credits pay all this, leaving just $2000 for Labor. I’m sorry Bill, but Malcolm beat you to it. 

Older, wealthy, self-funded retirees 

Their situation should remain unchanged. Let’s say their main asset is a portfolio of $4 million of Australian shares in joint names paying franked dividends of $90,000 a year to each person plus franking credits of $38,571. 

The tax on that will be about $38,000, including the Medicare levy, which means they may lose possibly $600 in franking credits, small bikkies in the scheme of things. 

So who is left over to pay the tax? We have raised almost no extra tax so far. 

Widows and widowers 

Let’s return to our good friends the Browns, who you met in last week’s column. They owned their own home, had $75,000 in bank deposits, and also held a share portfolio worth $710,000 returning dividends of $32,000 plus franking credits of $13,700. 

Their pension was $19 a fortnight combined, so total income – including franking credits and interest – was $47,700 a year. 

Unfortunately, Mr Brown died suddenly last week, leaving all his assets to his wife. Her situation will change dramatically. 

She is now a single pensioner, and the assets she has inherited take her over the Centrelink cutoff point. She will lose her pension, as well as the concession card that goes with it. 

The good news is that she will keep the franked dividends of $32,000. The bad news is that, under Labor’s proposal, she will lose the franking credits of $13,700. Labor’s proposed measures have finally raised some money. 

Hopefully anybody potentially in this situation will have taken good estate planning advice to ensure a more effective distribution of assets when one party dies, so the survivor can retain a part pension and all the franking credits. 

So how could Labor have made such a massive mistake? First, it was done in haste. Remember it was announced just a few days before the Batman byelection. 

Second, it is obvious that the costings were based on the situation before the June 30 changes, when the tax-free component of super was limited to $1.6 million. 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au


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## Skate (10 April 2018)

bigdog said:


> This article is from the April 8 issue of The Age Digital Edition. To subscribe, visit https://theage.digitaleditions.com.au/.
> 
> 
> Noel Whittaker
> ...




Hi bigdog

Thanks for posting an informative article from Noel Whittaker

Bill Shorten frames his case around the "Franking Imputation Tax credits" playing one section of the community against another meaning he is talking to the 25 -35 year age group -- vilifying the 55 to 75 year age group)

Noels article is highlighting another reason why this policy idea of his is unfair.
Retirement Investment returns are also treated unfairly.

*SUMMARY if others have missed it.*

Consider three people, all of whom have SMSFs in pension phase, and who — according to the current tax rules — pay 0% tax: 

1. Banking Betty, 
2. Rental Richard and 
3. Dividend Davina.

(a) Banking Betty deposits $100,000, and earns $2,000 each year in interest. *Betty doesn’t pay any tax.*

(b) Rental Richard has a $100,000 property that pays him $2,000 each year in rent. *Richard doesn’t pay any tax.*

(c) Dividend Davina buys $100,000 worth of shares that earned a profit of $2,000. The company paid tax of $600, so Davina gets $1,400. Davina doesn’t pay any tax.

See the difference here? 

Because Davina’s investment is in the form of shares in a company, *she gets less than the other two.* Even though she’s not supposed to pay any tax, the company paid tax, so she gets less.

Under current rules, she’d get the $600 back, delivering on the current government policy of a 0% tax rate, and equalising the return for each of those investors. (WHICH IS ONLY FAIR) 

So BILL -- why should Davina be penalised for her choice of Investment vehicle?

*CONCLUSION:* Bill Shorten, in effect, is penalising people for owning shares.


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## WRiley (16 April 2018)

What are Bill's reasons for not giving the above refund ? Where will the 'unrefunded monies' be channeled to then ? After all, this is the 'second tax amount' against the same liability,...


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## willy1111 (16 April 2018)

WRiley said:


> What are Bill's reasons for not giving the above refund ? Where will the 'unrefunded monies' be channeled to then ? After all, this is the 'second tax amount' against the same liability,...




He doesn't have enough coming in (revenue) to fund the handouts the government provide to the population.

Therefore he thinks it is fair and reasonable to take more from those that have to give to those that don't have. 

And if you own shares and receive dividend income you are considered to be in 'the have' camp and are in Bills firing line.


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## Tisme (17 April 2018)

How to avoid Shorten's plan = don't vote for his party at the next election.

Similarly how to avoid rudderless Malcolm = don't vote for the bickering Libs.

If Paul Keating stands, love him or hate him, vote for him.


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## PZ99 (17 April 2018)

Tisme said:


> How to avoid Shorten's plan = don't vote for his party at the next election.
> 
> Similarly how to avoid rudderless Malcolm = don't vote for the bickering Libs.
> 
> If Paul Keating stands, love him or hate him, vote for him.



Only one problem. Shorten's plan is the same as Keating's plan


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## Tisme (17 April 2018)

PZ99 said:


> Only one problem. Shorten's plan is the same as Keating's plan




Yeah but Keating can explain why things are done so they are digestible to the market and the man on the street...something Mal and Bill are incapable of:

e.g.

_“The imputation system I introduced did not incorporate ‘cashbacks’ for those taxpayers whose average income tax rate was less than the 30 per cent corporate rate,” Mr Keating told The Australian.

Mr Keating, who served as Treasurer (1983-91) and Prime Minister (1991-96), said the current system introduced by John Howard and Peter Costello needed reform because it saddled the country with huge imposts on the budget that are no longer affordable outside boom times.

“This provision, introduced by the Howard government in its search for the grey vote, replete with budget surpluses a la the China boom, was simply unnecessary largesse, as was the concomitant removal of tax on large superannuation accumulations for taxpayers over 65 years of age,” Mr Keating said.

“These two policies were funded by a spike in national income — a spike which has since disappeared, but left us with these large permanent structural budget costs.”

Labor’s policy will abolish cash refunds for excess imputation credits used by shareholders and self-funded retirees who pay little or no tax. The measure will boost the budget bottom line by almost $60 billion over the next ten years.

“The Labor Party is dealing with these structural anomalies in the search for fiscal stabilisation, something the government is badly failing to do,” Mr Keating said.

Mr Keating sees the policy as essentially a return to the dividend imputation system that he introduced in the years following the Hawke government’s 1985 tax summit. The purpose of that policy, as Mr Shorten said yesterday, was to eliminate double taxation on company profits.

“The imputation system essentially turned the company tax system into a withholding tax — a tax withheld by the Commonwealth to be returned shareholders stapled to their dividend,” Mr Keating said.

“In this way, corporate income was only taxed once and not twice as it was under Coalition governments in all the post-war years.”_


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## WRiley (17 April 2018)

Thank you to all who replied here,... looks like there is not going to be a way for us to avoid this refund-removal next year, huh ?

Keating and Shorten are going to do this, while Turnbull's poll results show he may not win in the coming elections,....


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## Junior (17 April 2018)

WRiley said:


> Thank you to all who replied here,... looks like there is not going to be a way for us to avoid this refund-removal next year, huh ?
> 
> Keating and Shorten are going to do this, while Turnbull's poll results show he may not win in the coming elections,....




By rolling your super into a retail fund, you could potentially still be eligible for franking credit refunds.  However I'd suspect labor will try to find a way to close this loophole.  If they don't, there could be a mass closure of SMSFs.

Shorten still has to win an election, AND the proposal has to go through in it's current form.


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## bellenuit (17 April 2018)

Junior said:


> By rolling your super into a retail fund, you could potentially still be eligible for franking credit refunds.  However I'd suspect labor will try to find a way to close this loophole.




Wouldn't an Industry Fund be safer, as I believed they are exempt (something to do with the Unions). There are many pretty good Industry Funds, like REST for example.


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## willy1111 (17 April 2018)

Junior said:


> By rolling your super into a retail fund, you could potentially still be eligible for franking credit refunds.  However I'd suspect labor will try to find a way to close this loophole.  If they don't, there could be a mass closure of SMSFs.
> 
> Shorten still has to win an election, AND the proposal has to go through in it's current form.




Depends on how you rate your ability to outperform the market, ala @craft compounding SMSF returns over 30% for over ten years.

Also a large portion of SMSF set up to buy property so they would be unlikely to be affected or consider closing down due to proposals.

Those just doing the LIC or index thing may very well be better off with a retail/industry fund.


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## WRiley (18 April 2018)

Junior said:


> By rolling your super into a retail fund, you could potentially still be eligible for franking credit refunds.  However I'd suspect labor will try to find a way to close this loophole.  If they don't, there could be a mass closure of SMSFs.
> 
> Shorten still has to win an election, AND the proposal has to go through in it's current form.




But looking at the current state of events, with Shorten and Keating thinking alike to remove our refunds, and Turnbull not doing too well in the polls, who else can we rely on to takeover the seat and not remove our refunds ?


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## Tisme (18 April 2018)

WRiley said:


> But looking at the current state of events, with Shorten and Keating thinking alike to remove our refunds, and Turnbull not doing too well in the polls, who else can we rely on to takeover the seat and not remove our refunds ?





The govt isn't making enough noise about this for votes. I suspect it will end up being a modified version that gets bi partisan support.


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## PZ99 (18 April 2018)

I'd say the chances of bi partisan support are zero.

More likely it'll get blocked by a hostile senate if it goes that far.


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## Tisme (18 April 2018)

PZ99 said:


> I'd say the chances of bi partisan support are zero.
> 
> More likely it'll get blocked by a hostile senate if it goes that far.




Be interesting.  I think the announcement was timed to give Malcolm a fightback tool (Mal and Bill bail each  other during party crisis), but it barely surfaced as a headshake


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## PZ99 (18 April 2018)

Regardless of the motive it was clearly poor timing because it could have contributed to Labor losing the SA election afterwards + Bill Shorten has already back flipped on parts of the policy + he avoids addressing how pensioners would be protected.

No I'd say it was a Bill Shorten brainfart akin to agreeing with everything that Gillard said without knowing what she said. Labor have nothing to gain from handing Turnbull a lifeline.

The reason the Govt couldn't capitalise on it was because they are still being undermined by their conservative backbench.


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## Tisme (18 April 2018)

PZ99 said:


> Regardless of the motive it was clearly poor timing because it could have contributed to Labor losing the SA election afterwards + Bill Shorten has already back flipped on parts of the policy + he avoids addressing how pensioners would be protected.
> 
> No I'd say it was a Bill Shorten brainfart akin to agreeing with everything that Gillard said without knowing what she said. Labor have nothing to gain from handing Turnbull a lifeline.
> 
> The reason the Govt couldn't capitalise on it was because they are still being undermined by their conservative backbench.




I wasn't inferring a govt lifeline.


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## PZ99 (18 April 2018)

I agree. Which is why I said Labor have nothing to gain from handing Turnbull a lifeline.


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## Junior (18 April 2018)

bellenuit said:


> Wouldn't an Industry Fund be safer, as I believed they are exempt (something to do with the Unions). There are many pretty good Industry Funds, like REST for example.




Both retail and industry funds wouldn't be impacted by the proposal, as it currently stands.  Retail funds give you access to 100s of managed funds, shares, LICs, Index funds etc. so if one of your aims is to obtain a high level of franking credits, then retail would be the go as you can customise a portfolio with this objective in mind.  If you want a simple, low cost option then Industry funds fit this profile.


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## Tisme (18 April 2018)

PZ99 said:


> I agree. Which is why I said Labor have nothing to gain from handing Turnbull a lifeline.




I wasn't inferring Labor either 

https://www.smh.com.au/opinion/keat...orten-is-paying-the-bill-20150925-gjujs2.html


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## PZ99 (18 April 2018)

No, but your article does 

_White knight to F3..._


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## Tisme (18 April 2018)

PZ99 said:


> No, but your article does
> 
> _White knight to F3..._




Yes, but I expect you of all people to see through the mist ..CM


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## PZ99 (18 April 2018)

Oh I saw through it alright. Australia is still going all the way with PJK by proxy, yeah?


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## barry c (18 April 2018)

Fair  bit of nonsense in this thread.
In the scenario put up by Skayte, Dividend Davina gets $2,000 return on her $100,000 of shares, then has to pay tax on that??  The company paying the dividend has already paid the tax, so she is entitled to the franking credits.  Now if the franking credits are cut out by Bill, it is no loss to her really, because it was a gift from Howard, and it is not really earnt.


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## Tisme (18 April 2018)

PZ99 said:


> Oh I saw through it alright. Australia is still going all the way with PJK by proxy, yeah?




You got it and the cabal of players who supposedly dislike each other in public.


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## WRiley (18 April 2018)

PZ99 said:


> I'd say the chances of bi partisan support are zero.
> 
> More likely it'll get blocked by a hostile senate if it goes that far.



I must think Tisme has a point for, so far, I don't see anybody objecting to removing the refunds and hitting pensioners hard, except us,... Looks to me like everybody up there is agreeable to this 'small issue',...


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## PZ99 (18 April 2018)

Here you go fellas...

https://www.theguardian.com/austral...aims-labor-robbing-pensioners-with-tax-policy

http://www.afr.com/news/labors-fran...y-on-the-run-malcolm-turnbull-20180325-h0xye7

http://www.abc.net.au/7.30/malcolm-turnbull-attacks-bill-shorten-on-his/9573694

I'd say the Govt is VERY much against the idea.


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## MrChow (20 April 2018)

Everyone under $20k income qualifies for the income test.  But those who don't qualify for the assets test own too many liquid assets.  All you have to do is sell those liquid assets and put them into your residential property to get under the threshold.  From there you get your excess franking credits back plus $20k in government payments.  I bet Bill didn't expect that.


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## WRiley (21 April 2018)

PZ99 said:


> Here you go fellas...
> 
> https://www.theguardian.com/austral...aims-labor-robbing-pensioners-with-tax-policy
> 
> ...



Thank you PZ99,... this is very useful indeed.

The euphoria looks like it has died down since Mar 22nd last month,... no more activities towards hitting out at this matter. Going through the materials a little more, has Labor officially decided to give out a maximum of $1000 franking refund as a way to mitigate 'damage' to the true low-income retirees ?


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## Tisme (21 April 2018)

PZ99 said:


> Here you go fellas...
> 
> I'd say the Govt is VERY much against the idea.




Nah, that's just the gratuitous response. The lack of desire of News Ltd to keep it on the front page tells the story.



> https://www.theaustralian.com.au/opinion/.../c8faa8d54989f69d502803a7788b9c11
> Mar 28, 2018 - Its franking credits position is tied to long-run strategy. The government, therefore, needs to discredit this policy as an issue of political survival. But it has failed so far......


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## noirua (22 April 2018)

Abolish taxation on dividends and abolish franking credits at the same time.  Reduce taxation on company profits as President Trump's administration has done - and tip the franking credit rubbish as well.


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## SirRumpole (22 April 2018)

noirua said:


> Abolish taxation on dividends and abolish franking credits at the same time.  Reduce taxation on company profits as President Trump's administration has done - and tip the franking credit rubbish as well.




Why should people who work for for a living have to carry all the the tax burden while investment income gets no tax applied ?


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## noirua (22 April 2018)

SirRumpole said:


> Why should people who work for for a living have to carry all the the tax burden while investment income gets no tax applied ?




That's how it is in Hong Kong and The British Channel Islands. Of course, many other sensible parts of the world as well.


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## Wysiwyg (22 April 2018)

noirua said:


> Abolish taxation on dividends and abolish franking credits at the same time.



Yes but if any receiver is on a higher marginal tax rate than the company they should be taxed the difference.


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## Junior (23 April 2018)

noirua said:


> Abolish taxation on dividends and abolish franking credits at the same time.  Reduce taxation on company profits as President Trump's administration has done - and tip the franking credit rubbish as well.




Trump is blowing out the budget deficit and public debt levels (Debt-GDP expected to reach levels not seen since WWII), with no plan or strategy to ever reduce it.  Incredibly short-sighted, and the next administration will have to figure out how to reign it back in.


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## Tisme (23 April 2018)

If dividends were unfranked, would the superannuants get a cheque back from the tax dept?

I guess we could argue that wages earners have the employer pay tax on their behalf and the refunds aren't credits, but cash.

I remember imputation a statistical substitution.


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## WRiley (27 April 2018)

noirua said:


> Abolish taxation on dividends and abolish franking credits at the same time.  Reduce taxation on company profits as President Trump's administration has done - and tip the franking credit rubbish as well.



One way of looking it is dividends actually came from company profits. If company profits have been taxed, why tax at shareholder's level again ? It would suffice to tax just at company profits level, and save all the time and work of taxing at the lower level,....


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## qldfrog (27 April 2018)

especially as the number and complexity of numerous shareholders for each company would make it so much easier  , trouble is the company will p.ss off toward better pasture O/S , or should it be stuck here due to its business just ramp up its price and margin with the aussie customer paying the higher price  oops..sorry this is already happening....


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## Value Collector (29 April 2018)

SirRumpole said:


> Why should people who work for for a living have to carry all the the tax burden while investment income gets no tax applied ?





When a worker earns $10,000 =($7000 paid in cash + $3000 withheld as tax)

When they do their tax return, they will get the $3000 that has been with held as a tax refund, because they earned under the $18k.

When a share holder earns $10K = ($7000 cash dividend + $3000 franking credit), the new plan would not allow them to receive their refund.

I think that would be unfair, every other type of earnings is tax free up until $18k, this plan unfairly eliminates tax free allotment for low income earners just because the earnings happen inside a company rather than another structure.


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## Value Collector (29 April 2018)

WRiley said:


> One way of looking it is dividends actually came from company profits. If company profits have been taxed, why tax at shareholder's level again ? It would suffice to tax just at company profits level, and save all the time and work of taxing at the lower level,....




You are right it should be one or the other,

I think the fairest system is the current system, it allows the profit to flow through to each shareholders tax return where it’s taxed at their rate, 

High income earners pay a higher rate lower income earners pay a lower rate.


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## SirRumpole (29 April 2018)

Value Collector said:


> When a worker earns $10,000 =($7000 paid in cash + $3000 withheld as tax)
> 
> When they do their tax return, they will get the $3000 that has been with held as a tax refund, because they earned under the $18k.
> 
> ...




So put a means test on franking credit rebates. There is no reason why someone earning $150k from investments should benefit from such a loophole.


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## willy1111 (29 April 2018)

SirRumpole said:


> So put a means test on franking credit rebates. There is no reason why someone earning $150k from investments should benefit from such a loophole.




An individual who earns $150k from dividends & franking credits would have income tax at a personal level of approx $40k due.

Paying $40k tax doesn't seem like much of a benefit to me!


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## SirRumpole (29 April 2018)

willy1111 said:


> An individual who earns $150k from dividends & franking credits would have income tax at a personal level of approx $40k due.
> 
> Paying $40k tax doesn't seem like much of a benefit to me!




Not if that individual received a large amount of tax free super.


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## willy1111 (29 April 2018)

M


SirRumpole said:


> Not if that individual received a large amount of tax free super.



ah...so it is the taxing of income earnt in the Super structure which is the issue.

Perhaps a better policy would be to leave franking credits as they are and once the member reaches 60/65 the earnings of their Superfund go into their Personal tax return and taxed at marginal rates.


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## SirRumpole (29 April 2018)

willy1111 said:


> M
> 
> ah...so it is the taxing of income earnt in the Super structure which is the issue.
> 
> Perhaps a better policy would be to leave franking credits as they are and once the member reaches 60/65 the earnings of their Superfund go into their Personal tax return and taxed at marginal rates.




That would be a very "courageous" policy for any party to have.

If they set a thresh-hold of $50k it might help sweeten the pill.


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## willy1111 (29 April 2018)

Courageous as it may seem, I wouldn't be surprised to see more tampering here. 

Only earnings taxed at marginal rate, not withdrawal of capital.

Ie, say at age 60 member has $1m. Through the next year income earnt is $35k dividend plus $15k franking credit. The fund pays no tax, but the member is liable for marginal tax on $50k, say 9k, tax credit for $15k franking credit, they receive a refund of $6k and have paid tax of $9k. They are due to pay $9k tax regardless of how much they take out of Super. Their super balance is $1.035m assuming they take no money out and they can take out as much or as little as they like, there is no benifit in leaving it in Super now apart from asset protection.


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## noirua (29 April 2018)

Changes are made to simplify tax systems all over the world. There are always winners and losers. You're a winner 'great'. You're a loser, tough, just grin and think 'Australia First'.


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## Value Collector (30 April 2018)

SirRumpole said:


> So put a means test on franking credit rebates. There is no reason why someone earning $150k from investments should benefit from such a loophole.
> 
> Not if that individual received a large amount of tax free super.




Why single out franking credits?

If Person A can use their tax free threshold to claim back tax with held from working part time

and

Person B can get $18,000 of tax free earnings from a rental property

and

Person C can get $18,000 of tax free earnings from Bank interest or Bond interest

why can't Person D claim back their Tax with held from their companies earnings?

--------

It simply doesn't make sense, 2 people could own the exact same asset and simply because one person owns it under a company structure he is taxed where as the person holding it directly pays no tax.


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## SirRumpole (30 April 2018)

Value Collector said:


> It simply doesn't make sense, 2 people could own the exact same asset and simply because one person owns it under a company structure he is taxed where as the person holding it directly pays no tax.





A company is a separate legal entity from the shareholders, the company should pay tax on its profits and the shareholders should pay tax on their income.


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## Value Collector (30 April 2018)

A company is just a conduit that people use to hold assets.

Imagine this situation, You and I both own apartments in the same building, you own apartment A and I own apartment B, but you happen to have bought yours under the name of your company while I own mine under my personal name.

If at the end of the year we have both made $18,000 on our identical properties, I get to keep the entire $18,000 tax free due to my tax free threshold, where as you will have to pay $5,400 company tax.

Me = $18,000 (tax free)
you = $12,600 (30% tax)

----------------

Even though we invested in identical properties, and had the same investment return, and both have large super incomes etc

I got 42% more than you simply because you weren't allowed to take advantage of the tax free threshold where I could.

How does that make sense? why only attack people holding assets in company structures?


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## SirRumpole (30 April 2018)

Value Collector said:


> How does that make sense? why only attack people holding assets in company structures?




So buy it in your own name, you have the choice. Companies give you legal separation from your company and allows you to limit your risk, so that is worth the cost of extra tax you may pay.


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## Value Collector (30 April 2018)

SirRumpole said:


> So buy it in your own name, you have the choice. .




Buying shares in companies is the only way to access investments for a lot of people,

 you can invest in property for as little as $500 by buying shares in a realestate investment company, but you would need serveral hundred thousand dollars to own a property in your own name,

so again you are targeting people of lower means, who have no way of making some of these investments except via owning shares.

Also, some assets are so big, owning shares is the only way to access them, unless you are a billionaire, so again you are just limiting the places people of lower means can invest their funds, you can hardly tell a person with $10K to go and start their own Iron ore mine or supermarket company directly.




> Companies give you legal separation from your company and allows you to limit your risk,




So what? I thought this was about people earning $150K in super but still using the tax free threshold.

Does it bother you that under this policy some one could still be earning $150K from their super, while still claiming the tax free threshold on Property investments, businesses, cash holdings, bonds and a million other possible investments, but you are only targeting people holding those assets under company structures?

The proposed legislation does nothing to stop people with other investments claiming their tax deduction.

-----------------------------------


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## SirRumpole (30 April 2018)

Value Collector said:


> Does it bother you that under this policy some one could still be earning $150K from their super, while still claiming the tax free threshold on Property investments, businesses, cash holdings, bonds and a million other possible investments, but you are only targeting people holding those assets under company structures?




Of course it bothers me. I can see no good reason why super income should not be taxable. Can you ?


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## Value Collector (30 April 2018)

SirRumpole said:


> Of course it bothers me. I can see no good reason why super income should not be taxable. Can you ?




Well super has its own tax rules.

But my point is, Why would you only want to create a ruling that only targets franking credits?

I mean if your goal is to stop people with large super accounts from taking advantage of the tax free threshold, simply banning franking credit refunds is a stupid way to do it, because people with large super accounts can still hold other investments and claim the deduction, plus alot of small players get hit in the cross fire.

you could simply have a rule that people with over X amount of super earnings don't qualify for the tax free threshold.


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## HelloU (30 April 2018)

oops, fat fingers


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## HelloU (30 April 2018)

I struggle to follow what is written often due to loose terminology.
when peeps talk of super earnings in the same sentence as tax free threshold....what is this about? Is this tax the 0% and 15% tax amounts payable in pension or accumulation funds? or are peeps using the $18K PAYG type tax threshold here as being somehow linked to super?


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## Value Collector (30 April 2018)

HelloU said:


> I struggle to follow what is written often due to loose terminology.
> when peeps talk of super earnings in the same sentence as tax free threshold....what is this about? Is this tax the 0% and 15% tax amounts payable in pension or accumulation funds? or are peeps using the $18K PAYG type tax threshold here as being somehow linked to super?




what it means is that Super earnings are taxed separately to your regular earnings outside super.

For example, Some one could be earnings $100K inside their super and have that taxed according to the rules and rates of Super, while they also may have income outside of their super which they would pay tax on at the marginal rate, taking advantage of the tax free threshold.

The proposed plan would make it impossible for people to get a refund of the franking credits that they can get now when their earnings are below the tax free threshold.

However it would still allow people with Part time jobs, Investment properties, term deposits, bonds and share trading income and any other income from using the tax free threshold, it simply targets one set of investors eg, share holders. 

Not only is it unfair to target one group of investors, but also targets smaller investors over larger ones.
-----------------

 I will be fine, I earn enough dividends to put me in the highest tax bracket so I don't get a refund I have to contribute extra money to bring the 30% already paid up to my tax bracket.

But the smaller investors are the ones that will get screwed, just because they chose to invest in a company (which we need more people to do), instead of a direct investment property (which is already saturated) they will be over taxed.


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## SirRumpole (30 April 2018)

Value Collector said:


> But the smaller investors are the ones that will get screwed, just because they chose to invest in a company (which we need more people to do), instead of a direct investment property (which is already saturated) they will be over taxed.




https://theconversation.com/pension...-franked-dividends-under-labor-backdown-93972


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## Value Collector (30 April 2018)

SirRumpole said:


> https://theconversation.com/pension...-franked-dividends-under-labor-backdown-93972




Pensioners, what about everyone else? eg the other small investors, self funded retirees and low income earners.

and again why just franked dividends??? why are they fine with property investors and the other income sources not being taxed?


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## SirRumpole (30 April 2018)

Value Collector said:


> Pensioners, what about everyone else? eg the other small investors, self funded retirees and low income earners.




Are you talking about low taxable income or low gross income ?

It really disturbs me that someone on $150k tax free super with $18k dividend income won't get a refund.

Do you really think that low (gross)  income earners who struggle to pay the rent have the spare cash to invest in shares ?


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## HelloU (30 April 2018)

Again I am confused by terminology..................reading between the lines......I think you are making this point using a person that has super in pension phase....and is withdrawing $150K in a single financial year from this account (will assume as minimum required drawdown - otherwise would be better to use outside super capital), and has some other investments outside of this super that produce income (hope I have interpreted correctly as otherwise the term tax free does not fit).

If so, then be aware that the tax free threshold for this person for their out of super investment income starts at about $32K, then rises to $45K before falling back to $18K if they exceed the tax thresholds at $45K. It does NOT start at $18K like the tax free threshold does for most taxpayers. These figures are threshold numbers...that relate to outside super income levels for peeps who drawdown on their super but do not get a govt pension.


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## HelloU (30 April 2018)

Only writing this cos I read a lot of examples of explanation that use examples that do NOT exist in the real world. Or lack so much detail I am unable to determine if they are accurate or not.


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## sptrawler (1 May 2018)

SirRumpole said:


> Of course it bothers me. I can see no good reason why super income should not be taxable. Can you ?




Well on the same note, why shouldn't a pension be taxable?


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## SirRumpole (1 May 2018)

sptrawler said:


> Well on the same note, why shouldn't a pension be taxable?




I believe it is to an extent.

https://www.smh.com.au/money/is-the-pension-included-in-my-annual-income-20121023-282hz.html


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## Junior (1 May 2018)

SirRumpole said:


> I believe it is to an extent.
> 
> https://www.smh.com.au/money/is-the-pension-included-in-my-annual-income-20121023-282hz.html




An Account Based Pension paid from super benefits, is not taxable.

I think that article is referring to Centrelink Age Pension.


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## SirRumpole (1 May 2018)

Junior said:


> An Account Based Pension paid from super benefits, is not taxable.
> 
> I think that article is referring to Centrelink Age Pension.




Well, I don't see why income from any source should not be taxable. Have a generous tax free threshold to protect low income earners and anything over that is taxable.

That way the marginal tax rates can be reduced.


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## Darc Knight (1 May 2018)

Pension income is classed as Taxable Income but you get a Tax Credit for it at the end, if I'm right.


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## Value Collector (1 May 2018)

SirRumpole said:


> It really disturbs me that someone on $150k tax free super with $18k dividend income won't get a refund.




What disturbs me is that the proposed legislation targets franking credit refunds, while leaving the owners of rental properties free to earn money tax free, 

So the legislation would only hit a portion of the people you wish to target, while it also hits alot of other people in the crossfire.

It would be very easy to make legislation that only targeted the people you want to hit, focusing on one asset class is silly, especially if the bulk of the people that are affected aren't the people you actually want to hit.


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## SirRumpole (1 May 2018)

Value Collector said:


> What disturbs me is that the proposed legislation targets franking credit refunds, while leaving the owners of rental properties free to earn money tax free,




So target negative gearing as well. That's another of Labor's policies.


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## Value Collector (1 May 2018)

SirRumpole said:


> Well, I don't see why income from any source should not be taxable. Have a generous tax free threshold to protect low income earners and anything over that is taxable.
> 
> .




I agree, I think all income should flow through and be taxed at your marginal rate.

But I am 100% against double taxation.

However I am fine with super having its own tax rules.


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## SirRumpole (1 May 2018)

Value Collector said:


> But I am 100% against double taxation.




AS pointed out before companies are separate entities from the shareholders and therefore taxing both is NOT double taxation.



> _*I agree, I think all income should flow through and be taxed at your marginal rate.*_
> However I am fine with super having its own tax rules.




Those two statements are mutually exclusive.

Superannuation is income and should be taxed at marginal rates and not have "it's own rules".


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## Value Collector (1 May 2018)

SirRumpole said:


> So target negative gearing as well. That's another of Labor's policies.




the simple fact is that the legislation will still allow the group they claim they want to target to earn all sorts of other income tax free, it is only targeting one group, and hits a lot of innocent people.

Why would you be happy with a legislation where say 90% of the people affected were innocent and only 10% were your target group, while a large chunk of the target group are missed?


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## SirRumpole (1 May 2018)

Value Collector said:


> the simple fact is that the legislation will still allow the group they claim they want to target to earn all sorts of other income tax free, it is only targeting one group, and hits a lot of innocent people.
> 
> Why would you be happy with a legislation where say 90% of the people affected were innocent and only 10% were your target group, while a large chunk of the target group are missed?




I believe Labor's proposal is to "grandfather" the current arrangements so that people who are NG'ing now can continue to do it , while in the future people will have to invest in new properties in order to NG.

That was the purpose in NG in the first place, to increase housing supply, but applying it to existing properties turned it into a middle class tax rort.


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## Value Collector (1 May 2018)

SirRumpole said:


> AS pointed out before companies are separate entities from the shareholders and therefore taxing both is NOT double taxation.
> .




And as I pointed out that is silly, it is double taxation.

it can even be triple or quadruple taxations when companies own other companies.

Imagine this situation.

You own a company called "sir rump investments", it owns shares in "Coca Cola", "Coca Cola" owns a 50% stake in a micro brewer called "Beer co", "Beer co" has a bit of spare capital invested in 'BHP".

BHP earns $100 - $30 tax = $70 paid to "beer co"
Beer gets the $70 - $21 tax = $49 paid to "Coca cola"
Coca Cola gets $49 - $14.70 tax  =$34.30 paid to sir rump investments
Sir rump investments gets $34.30 - $10.29 = $24.01 paid to you.
You get the $24.01 - $10.80 tax (45%) = $13.21 left for you to spend.

So out of the original $100 earnings that were attributable to your holdings in BHP you paid $86.70 tax.

Thats same $100 of earnings was taxed 5 times.

The current system is much fairer, in the current system franking credits would flow through all the layers and the $100 would be taxed on your tax return at your tax rate, meaning the high income earners tax would be capped at 45% and rest would pay less and maybe get a refund for the lowest earners.


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## SirRumpole (1 May 2018)

Value Collector said:


> You own a company called "sir rump investments", it owns shares in "Coca Cola", "Coca Cola" owns a 50% stake in a micro brewer called "Beer co", "Beer co" has a bit of spare capital invested in 'BHP".




So this situation exists in all but 3 of the countries in the world without dividend imputation and they accept it as a fact of life.


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## HelloU (1 May 2018)

complicated yes,
some thoughts:
1. super imo is more like 10% of your wage being put in a 'bank account' that u cannot touch till later. I struggle with thoughts that any withdrawals from this should be treated as 'income'. Just the same as I do not consider capital withdrawals from my CBA everyday account, that I deposited 5 years ago, should be treated as income. My super was already treated as MY income years ago when deposited - and taxed as such.
2. Neg gear is not just for rental houses for individuals. Expand ur thoughts to all income loss making activities for both individuals and companies when thinking of this. This will change more than peeps buying rental houses.
3. 'double tax on company stuff'. What about franking credits distributed by trusts - should peeps get an applicable refund on these? (a trust is not an entity but just a relationship). Hmmmmmm.
complicated, yes.


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## SirRumpole (1 May 2018)

HelloU said:


> 1. super imo is more like 10% of your wage being put in a 'bank account' that u cannot touch till later. I struggle with thoughts that any withdrawals from this should be treated as 'income'. Just the same as I do not consider capital withdrawals from my CBA everyday account, that I deposited 5 years ago, should be treated as income. It was already treated as MY income years ago when deposited - and taxed as such.




You pay tax on bank interest (income), but not on withdrawal of your savings from a bank. True ?


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## HelloU (1 May 2018)

true, my point exactly as peeps are talking about including super drawdowns as part of income and then paying income tax on it.....that was how I read the posts.


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## willy1111 (1 May 2018)

Taking an Account Based Pension from Super sometimes means the pension/income comprises an amount of capital return, the capital portion should not be taxed again.

Eg, $1m super balance, earnings for the year are $20k of bank interest as all funds invested in cash, but the member draws out $50k Account based pension, 30k is withdrawal of capital, $20k is earnings of the fund which I think would be fair to tax earnings or in this case $20k in personal tax return at marginal rates.


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## HelloU (1 May 2018)

SirRumpole said:


> Superannuation is income and should be taxed at marginal rates and not have "it's own rules".



did I mis read this (maybe u meant tax on the income being produced whilst capital remains in the fund?) I maintain that the capital held in super has already has been taxed as income years earlier. And thus should be exempt from income tax when drawn down out of the fund.


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## boofhead (1 May 2018)

If the Coalition get their corporate tax cuts through the people that get the franking credits will also have their franking credits reduced. Not sure why Labor didn't make something more of it.


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## SirRumpole (1 May 2018)

HelloU said:


> did I mis read this (maybe u meant tax on the income being produced whilst capital remains in the fund?) I maintain that the capital held in super has already has been taxed as income years earlier. And thus should be exempt from income tax when drawn down out of the fund.




As I understand it super contributions are only taxed at 15% , so the full marginal tax on those inputs  has not been paid, so maybe a discounted tax rate on earnings could apply.


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## SirRumpole (1 May 2018)

SirRumpole said:


> As I understand it super contributions are only taxed at 15% , so the full marginal tax on those inputs  has not been paid, so maybe a discounted tax rate on earnings could apply.




Sorry, I should have said marginal tax rates on *earnings*, discounted tax rate on capital withdrawals.


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## HelloU (1 May 2018)

true again, prolly something to do with MY money (in lieu of in hand wage rise) as a 20 year old worker will be locked away for 40+ years...............do u really want to lock up someones money for more than 40 years and take away concessions for this?


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## HelloU (1 May 2018)

btw, I am no fan of super...I think it distorts the economy and taxation base......but for another day.


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## moXJO (1 May 2018)

SirRumpole said:


> So this situation exists in all but 3 of the countries in the world without dividend imputation and they accept it as a fact of life.



Australia has had no recession for over 20 years (not that its entirely good thing).
One of only 2 countries I think.  Maybe we have it right and everyone else has it wrong. 
Why the hell are you looking to other countries without taking their tax system as a whole into account.


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## SirRumpole (1 May 2018)

moXJO said:


> One of only 2 countries I think. Maybe we have it right and everyone else has it wrong.




China, iron ore & coal exports.

Worst ever international debt. Debt and deficit disaster remember ? That's what you get when you have mile wide tax loopholes.


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## Value Collector (1 May 2018)

SirRumpole said:


> So this situation exists in all but 3 of the countries in the world without dividend imputation and they accept it as a fact of life.




They generally have lower tax rates for dividends, eg in the USA tax on dividends is limited to 15%.

Also, that is a reason why in countries such as the USA dividends are quite small, with most companies preferring to buy back stock instead of pay dividends.

It's a big factor in why Berkshire Hathaway hasn't paid a dividend in 50 years.


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## SirRumpole (1 May 2018)

Value Collector said:


> They generally have lower tax rates for dividends, eg in the USA tax on dividends is limited to 15%.
> 
> Also, that is a reason why in countries such as the USA dividends are quite small, with most companies preferring to buy back stock instead of pay dividends.
> 
> It's a big factor in why Berkshire Hathaway hasn't paid a dividend in 50 years.




So how is this a benefit to shareholders ?


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## Value Collector (1 May 2018)

SirRumpole said:


> So how is this a benefit to shareholders ?




How is what a benefit?


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## SirRumpole (1 May 2018)

Value Collector said:


> hat a benefit?




The fact that a company hasn't paid a dividend in 50 years.


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## Value Collector (1 May 2018)

SirRumpole said:


> The fact that a company hasn't paid a dividend in 50 years.




In Berkshires case the share price has risen from $6 per share to $290,000, by retaining all the earnings.

But, my point is simply that if companies know that as soon as they hand over the dividend check to share holders it will be taxed at 15%, there is an argument that it is not tax efficient to pay dividends.

So a lot of American companies avoid paying dividends or pay only token dividends, because they think it is better for the share holder for them to hold on to the funds and reinvest them or use the cash to buy back the companies shares, rather than have the share holder be subject to a 15% tax.

eg. If you get paid $100 in dividends, you must then pay $15 tax, so you only have $85.00 available to reinvest.

However if the company just bought back $100 of its own shares or made some other investment rather than pay you the dividend, the full $100 should accrue to your benefit.

------------------
I much prefer the Australian system.


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