Pay shareholders their dividend and they can pay the appropriate rate of Income Tax on it exactly the same as bank interest or anything else including unfranked dividends. Simple and stops loopholes unless someone engages in outright fraud.
A company makes a profit and pays its tax on that profit.
You receive a dividend from that company which is due to its profit, and for which tax has been paid.
You claim the dividend as income and, as the tax has been paid it affords you an imputed credit on your tax return so that the company's profits are not double taxed (via your dividend payment).
Where a retiree does not pay tax, then the imputed credit is returned by the ATO to the retiree. The net effect of this special transaction means that the retiree's investment in the company precludes the government from deriving a tax revenue.
The logic of Labor's policy is sound.
The effects for self funded retirees whose SMSFs are only around the $1m mark can be profound as some would receive less annually than the pension, were Labor's policy to go through the Parliament.
There are two simple solutions.
First, allow self funded retirees to earn a total income at least equal to the pension, before recouping imputation credits.
Second, and the proposal I sent to Bill Shorten, was for retirees that ordinarily do not pay tax, have their imputation credits treated as income and be taxed according to the prevailing tax regime. This effectively means that up to $18200 in imputation credits would not currently be taxed, and allow those on marginal self funded retirement incomes to continue to live modestly without a tax payer funded pension.