Australian Federal Election - 2019

[wayneL]

That tax the company paid is owed to the government revenue pool, that refund is taken from government revenue and given to individuals. It's welfare, just because the beneficiaries don't have to lineup down at centrelink like the other poor plebs doesn't change that.

You are *effectively* advocating double taxation.

 

[overhang]

You are *effectively* advocating double taxation.

No, I'm just not advocating no taxation which is what this proposal was all about, not the complete removal of dividend imputation. If a company pays tax, then that company pays out a dividend out of the retained earning after tax and if that dividend is paid to an individual who pay's no income tax then that individual is entitled to a refund equal to the tax the company paid. In this situation the government has earned no revenue from that proportion of the company tax paid, all at the benefit of an individual. So forget double taxation this is zero taxation.

I'm not sure how one can't agree that this is a form of welfare, the government has received no tax from company profits because that taxed proportion of the company profits have been refunded to an individual.

 

[rederob]

Franking credits are not welfare, it's essentially the same as wage earners getting a tax refund. It's a refund of company tax already paid.

In the case of wage earners the franking credit normalises the dividend as tax was paid by the company.
In the case of retirees funded via an SMSF, no tax is payable by the fund. Therefore that component of the received dividend which was taxed now turns into a credit, which the ATO refunds to the SMSF.
It also means that this reduces the revenue the ATO would ordinarily have received had the SMSF still been in "accumulation" phase.
So it's very different to what you claim.

 

[Smurf1976]

The biggest problem we've got in Australia is too much division, ignorance and point scoring.

Most of the rest is just detail flowing from that.

 

[Smurf1976]

I'm not sure how one can't agree that this is a form of welfare, the government has received no tax from a company profits because that taxed proportion of the company profits have been refunded to an individual.

The issue is that lots of other people get, in practice, the same arrangement of paying no tax on their income and that Labor proposed to remove it only for a small portion of the population.

If their argument is that it needs to go well then get rid of it for everyone. I don't agree that should be done but it should'd be something that sets up a false divide of one group versus another.

 

[rederob]

The issue is that lots of other people get, in practice, the same arrangement of paying no tax on their income and that Labor proposed to remove it only for a small portion of the population.

I cannot work out what this means.
Help please.

 

[overhang]

The issue is that lots of other people get, in practice, the same arrangement of paying no tax on their income and that Labor proposed to remove it only for a small portion of the population.

If their argument is that it needs to go well then get rid of it for everyone. I don't agree that should be done but it should'd be something that sets up a false divide of one group versus another.

The difference is though while some people are able to use incentives etc to get their taxable income down to zero they aren't paid a negative tax like these SMSF retirees. It's one thing to pay no tax, it's another to be paid tax aka welfare.

 

[sptrawler]

In the case of retirees funded via an SMSF, no tax is payable by the fund. Therefore that component of the received dividend which was taxed now turns into a credit, which the ATO refunds to the SMSF.
It also means that this reduces the revenue the ATO would ordinarily have received had the SMSF still been in "accumulation" phase.
So it's very different to what you claim.

If the changes had been enacted, from my understanding the following would have happened:
Just for example purposes, round figures.
If the SMSF was in pension phase and received say $1,000 dividend, this also had a franking of $300, so the fund received $1,300. With the proposed changes the $300 would stay with the ATO.
If the SMSF was in accumulation phase, then the franking credit could be used to offset tax due, so instead of the fund receiving $1,150 and the ATO keeping $150, the ATO keep the $300.
So really whether in accumulation or pension, the earnings are the same $1,000.
That is my understanding and was why they stated, that if you had enough people in accumulation phase, they could absorb the excess franking credits.
The problem is, when they introduced super, they didn't say the first X amount was tax free, they said in pension phase it was a tax free vehicle.
In reality what they are saying is in accumulation you get the franking credit, in pension phase you don't.

 

[Smurf1976]

I cannot work out what this means.
Help please.

The Tax Free Threshold of $18,200 provides a 0% rate of income tax for everyone, even people earning $ millions a year don't pay a cent of tax on their first $18,200.

Between $18,201 and $37,000 the Income Tax rate is 19%.

It thus seems entirely fair that if someone has an income from any source, including franked dividends, which is genuinely in this range then they should be paying these rates of tax.

Since the Company Tax rate is 30%, for someone with franked dividends as their only source of income, as could plausibly be the case for a self-funded retiree or otherwise not working person, they would thus need to be receiving a refund from their franking credits in order to pay the same rate of tax as anyone else earning these amounts by whatever means (bank interest, part time work, whatever).

Note that I'm referring to genuine income here not any elaborate loopholes etc. So that's for example someone who's worked a normal job paying roughly average wages, saved and invested outside superannuation, and who finds themselves retired in their 50's. I don't mean someone with $ millions who's hidden it wherever etc so as to avoid tax.

If Labor wants to go after people rorting the system to avoid paying tax then they have my full support in doing so. But in doing so, don't harm (for example) a bricklayer who's hands are stuffed after 35 years laying bricks and who's now living from his investments genuinely earning a modest amount. He's not claiming welfare, it's his money he earned and saved, so let him have the Tax Free Threshold and the 19% rate same as everyone else with the same level of income gets. Sure he's not paying tax but then nor is anyone else on a low income and he's saving the taxpayers money by having kept himself off welfare so that's enough surely.

Using my bricklayer example, well if he hadn't saved and invested then he'd now be on the dole wasting everyone's time applying for jobs he's got zero chance of getting. He's already paid tax, likely at a rate of 32.5% on the profits of his investments whilst he was still working and he's not claiming welfare so don't hit him with a 30% tax on his dividends. He ain't the big end of town that's for sure.

For those who are doing creative accounting to turn $10 million into $10K and pay now tax, sure close those loopholes and stop them doing it. Just don't hurt the genuine low income investor in doing so.

 

[Macquack]

Franking credits are not welfare, it's essentially the same as wage earners getting a tax refund. It's a refund of company tax already paid.

I am surprised that the gold entitlement to get a refund of company tax paid does not extent to demanding a refund of the GST component paid by same company. Poor dears in retirement are still paying GST, what an injustice.

It is only a rort if you are not in on it.

 

[Bill M]

The franking credits policy Labor wanted to bring in was discriminatory and unfair and it was a major reason why it lost the election.

Here is a working example (one of many) of why it was so wrong.

To get any sort of part pension you would need to have assets of less than 567k approx.

Person 1, has a 550k share portfolio and receives franking credits because they get $10 a week of part pension. These franking credits total approx 6k.

Person 2, has a 580k share portfolio but does not receive any pension because he is over the assets limit. He does not receive his franking credits because Labor thinks he is rich.

In this example they both currently get refunded around 6k in credits. Why should person 1 get a 6k windfall and person 2 can not? How on earth is this fair? Just a dumb, unfair cash grab on those that are fractionally better off.

 

[moXJO]

I have to laugh at the irony of some on here who complain that Labor were going to run a welfare state while at the same time being relieved that their franking credits aren't going to be taken away. You do realize that franking credits are a form of welfare?

dividends are not payed by government last time I checked. Governments leach off various things then claim its their money.

 

[sptrawler]

Let's be honest, three elections ago labor were calling for the family home to be included in the asset test, it was dropped.
last election, they were going to tax superannuation earnings above $100,000 at 15%, it was dropped.
This election they were going to tax superannuation by removing franking credits.
They were going to increase CGT from the current 50% to 75%.
They were only going to allow those who could afford to build a new house, to negative gear.
Really is there any wonder, they increased their vote in wealthy areas and had a swing against them in poorer areas.
The only ones who would be happy, would be the wealthy that hold mega bucks through a company structure and those on some form of public service superannuation pension that is indexed to cpi.

 

[sptrawler]

The difference is though while some people are able to use incentives etc to get their taxable income down to zero they aren't paid a negative tax like these SMSF retirees. It's one thing to pay no tax, it's another to be paid tax aka welfare.

Well to use your example, if a married couple of pension age get their savings down from $1m to $150k, it would cost the Government $40k/annum as opposed to $6k in franking credits.
That is dumb, not only are you paying them a franking credit, you are giving them $36k in welfare as well.

 

[qldfrog]

But

Well to use your example, if a married couple of pension age get their savings down from $1m to $150k, it would cost the Government $40k/annum as opposed to $6k in franking credits.
That is dumb, not only are you paying them a franking credit, you are giving them $36k in welfare as well.

Having people on welfare is the ultimate aim of socialism
SirRumpole and other may deny it and see it as foolish
France who has been under socialism or similar since 1980 is reaching 43pc of population receiving some welfare, and that does not count one of the higher percentage of public servants in the world
Fool yourself if you think our Labour and australia would be different
Remove private money, get to an omnipotent state is the so called progressive agenda..
look at answers above...
History does not seem to teach us anything

 

[PZ99]

The franking credits policy Labor wanted to bring in was discriminatory and unfair and it was a major reason why it lost the election.

Here is a working example (one of many) of why it was so wrong.

To get any sort of part pension you would need to have assets of less than 567k approx.

Person 1, has a 550k share portfolio and receives franking credits because they get $10 a week of part pension. These franking credits total approx 6k.

Person 2, has a 580k share portfolio but does not receive any pension because he is over the assets limit. He does not receive his franking credits because Labor thinks he is rich.

In this example they both currently get refunded around 6k in credits. Why should person 1 get a 6k windfall and person 2 can not? How on earth is this fair? Just a dumb, unfair cash grab on those that are fractionally better off.

Yep - there's the rub. 30k of assets is the difference between getting two payments (pension + credits) and getting nothing. Labor need to redesign it rather than just say take it or leave it.

If the policy was supposed to cut welfare it fails because it's a disincentive for a retiree to grow their assets and get off that welfare. People would merely put their $30K under the bed.

Don't put it in the ground or you might cop the mining tax that was equally self defeating

 

[rederob]

If the SMSF was in pension phase and received say $1,000 dividend, this also had a franking of $300, so the fund received $1,300. With the proposed changes the $300 would stay with the ATO.
If the SMSF was in accumulation phase, then the franking credit could be used to offset tax due, so instead of the fund receiving $1,150 and the ATO keeping $150, the ATO keep the $300.
So really whether in accumulation or pension, the earnings are the same $1,000.

If the fund is fully in accumulation phase, and has a marginal tax rate of 15%, this $1,000 of income would be deemed to have a tax liability of $150 and the $150 already paid by the company would be refunded. So in accumulation the earnings are $1,150 and not $1000.
Concessional tax treatment is a reason some people have SMSFs.
In my SMSF a portion has been allocated to accumulation and another to pension, so it's not simple.
WayneL's claim related to wage earners who have very different tax arrangements.

 

[overhang]

dividends are not payed by government last time I checked. Governments leach off various things then claim its their money.

No one is touching the dividend, they are touching the company tax component of that dividend, company tax that is owed to the government. Your basically advocating no company tax with this policy.

 

[overhang]

Well to use your example, if a married couple of pension age get their savings down from $1m to $150k, it would cost the Government $40k/annum as opposed to $6k in franking credits.
That is dumb, not only are you paying them a franking credit, you are giving them $36k in welfare as well.

How did this couple get their savings down from 1 million to 150k? Is part of those savings counting their tax free super? Of that savings it sounds like only about 300k or so was invested in shares.

The policy was not without it's flaws, it should have been means tested and it should have been grandfathered in and slowly phased out. I would sympathize with those who have planned their whole retirement based on the franking credits as an income stream only to have the rug pulled out from under them.

But I would still like to point out it is a form of welfare, it's removed tax owed to the government by the way of company tax and given it to an individual, tax payers are subsidising these individuals. So like I said it's quite ironic that there are many on here with the nerve to attack a welfare state while simultaneously enjoying a retirement that is part paid by the tax payers purse.

 

[SirRumpole]

Labor handled the franking credits changes very badly in my opinion.

I appreciate the intent of the scheme, but they should have said something like

"if you want to claim franking refunds, then tell us your real income (inclusive of payments such as tax free super which are not required to be shown on tax returns), and if your total income is less than (say) the median wage, then you can keep your rebates, otherwise it is reduced dollar for dollar above that amount".

That would have softened the impact of the scheme, assuming that the great Australian public were bright enough to understand.