Dividend franking credits

Bill M said:

It's not only about smsf's, it's also about the little old lady who has nothing but the state pension and a 100K in CBA shares. Currently the grossed up divi is about 9%. It goes something like 70% franked income and 30% in franking credits. She receives back at tax time all of those franking credits which gives her a $9,000 grossed up dividend, or an income of 9K. Under the Labor proposals she looses the franking credits and now will only receive $6,000. Why should the old lady take a $3,000 pay cut? What did she do in her life to deserve that? It isn't fair.

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(no idea what a state pension is ....so will assume u mean govt old age pension)

all welfare recipients will still get the refund ......

Knobby22 said:

.

As a working taxpayer I have to say that I understand where Bill is coming from.

(Cowers and waits for bricks).

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You won't always be and if you think Bill will stop at pensioners, you're dreaming.

They are already finding problems with the pension, it is being indexed every 6 months, it is already better returns, than those who lose it are receiving.

Knobby22 said:

Most of the money goes to very few people who are already extremely wealthy. Everyone always trots out the little old lady thing but most of this money goes to a few thousand people.

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So why introduce a change which harms the little old lady whilst retaining the full value of franking credits for high income earners in the top tax bracket?

Doing the reverse and making franking credits means tested would seem a very much fairer approach and more effective at achieving the implied objective.

HelloU said:

hey
i think u need way more in accum than 50% to make it work ..... i do not know the numbers on that (expect too many variables to get numbers) ..........this is cos there is a $25K limit on non-conc contributions ....so u need a heap of those $25K contributing members.

i was just sayin that the rules will apply equally .... but agree it will be very very difficult for smsf to compete. for the trustees to grapple with if it comes .......

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They can't justify giving the franking credits, to those in industry funds, just because they are in a large fund.
Those in the industry fund, that are in the pension phase, still pay no tax.
The outcome would still be illegal and discriminatory, it is no better than what the banks were doing, shows how short memories are.
If they bring it in, they will have to make all super funds have a breakdown of accounts, or it will be open to legal challenge. IMO

Hi Bill, can you help me as I am trying to help my retired parents with this as they are upset about these proposal by Labor.

They have shares in their SMSF which they do not pay tax on as they are in pension phase. If franking credits are removed under your example they will receive $9K which they pay no income tax on if all shares are held in the SMSF. So franking credits is a zero end game in this case.

But if Mom has $100K in her personal name, she will be $3K worse off, as she will not get the franking credits.

Have I got something wrong?

Smurf1976 said:

So why introduce a change which harms the little old lady whilst retaining the full value of franking credits for high income earners in the top tax bracket?

Doing the reverse and making franking credits means tested would seem a very much fairer approach and more effective at achieving the implied objective.

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Doing what they said they would do, last election makes more bloody sense, tax self funded pensions above a certain amount.
The fact is they want everyone in Industry funds, so they all have a job post politics, can't wait to see them choke on Hayne's recommendations.

sptrawler said:

They can't justify giving the franking credits, to those in industry funds, just because they are in a large fund.
Those in the industry fund, that are in the pension phase still pay no tax.
The outcome would still be illegal and discriminatory, it is no better than what the banks were doing, shows how short memories are.

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above my pay grade ..... but the trust structure is what allows the transfer to occur .....but the trust must have a tax liability for the tax credits to be of any use ....the tax liability is what the smsf (pension phase) does NOT have.
The rules will still be the same - the problem is that the smsf structure is too tight (not enough members). that is what the trustees may need to investigate .........

HelloU said:

above my pay grade ..... but the trust structure is what allows the transfer to occur .....but the trust must have a tax liability for the tax credits to be of any use ....the tax liability is what the smsf (pension phase) does NOT have.
The rules will still be the same - the problem is that the smsf structure is too tight (not enough members). that is what the trustees may need to investigate .........

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It will still be illegal for a fund to apportion credits, to accounts that are in the pension phase, it will give an uncompetitive advantage to large funds.
Like I said it is just as bad as the behaviour of the Banks.
It will be interesting, I can see the ACCC being dragged into it.
What the structure is too tight to allow uncompetitive and illegal behaviour.

sptrawler said:

It will still be illegal for a fund to apportion credits, to accounts that are in the pension phase, it will give an uncompetitive advantage to large funds.
Like I said it is just as bad as the behaviour of the Banks.
It will be interesting, I can see the ACCC being dragged into it.
What the structure is too tight to allow uncompetitive and illegal behaviour.

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dunno ....above my pay grade
i have not seen one financial analyst that has said that industry funds will not be able to wash the credits through the fund to help their pension phase members??? happy to be corrected

my comments are not about the fairness of the proposal but about the way it will work ......

HelloU said:

all welfare recipients will still get the refund ......

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All of them? So if the threshold (cut out) of the pension is 800k in assets for a couple and they have 790K and collect $20 per fortnight from a Government pension then all imputation credits from their 790K worth of investments will be refunded at tax time. Is that correct?

HelloU said:

dunno ....above my pay grade
i have not seen one financial analyst that has said that industry funds will not be able to wash the credits through the fund to help their pension phase members??? happy to be corrected

my comments are not about the fairness of the proposal but about the way it will work ......

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Going back to your first quote on the subject:
The truth is that ALL super funds will be subject to the same rules.

Nothing could be further from the TRUTH.

Bill M said:

All of them? So if the threshold (cut out) of the pension is 800k in assets for a couple and they have 790K and collect $20 per fortnight from a Government pension then all imputation credits from their 790K worth of investments will be refunded at tax time. Is that correct?

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(not been here much lately) ...yes, has this not been discussed on this forum?

mate, people on the dole will still get the refund (on the basis of what is known)

HelloU said:

(not been here much lately) ...yes, has this not been discussed on this forum?

mate, people on the dole will still get the refund (on the basis of what is known)

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Yes I brought it up, when it was mentioned earlier, just another stuff up.

truth

if u currently get a refund of franking credits (for whatever reason) and are NOT on govt welfare, then u will lose the refund.

that is the current plan for this as i understand it.

HelloU said:

truth

if u currently get a refund of franking credits (for whatever reason) and are NOT on govt welfare, then u will lose the refund.

that is the current plan for this as i understand it.

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Unless you are in an Industry Fund or Large Retail fund, in which case the rules will be bent, to give you the franking credits. lol

I complete a tax return and will not be effected if franking credits are cancelled!

https://www.afr.com/brand/rear-window/furphys-abound-in-franking-credits-debate-20190203-h1asmq

Furphys abound in franking credits debate
By Myriam Robin and Joe Aston

There's been abundant hysteria about Bill Shorten's policy to abolish cash refunds on excess franking credits. But ACTU chief of staff Ben Davison has taken the cake, after spending much of the weekend railing on Twitter against opposition to Labor's pledged tax reform.

Davison has been particularly exercised by a case study in Melbourne's Herald Sun of retiree Jean, who gets $29,810 in dividends from her self-managed super fund and $130,000 of income from other assets each year. On those same numbers but under Labor's incoming system, she would lose nearly $13,000 a year in cash refunds. Davison observed that "retired Jean makes far more money than I do working full time, pays no tax (I pay tax), and gets $12,775 refunds on tax never paid".

Davison (and many others) fails to appreciate that Jean has already paid tax on every dollar of her input balance in income tax, and that every asset held in it pays tax again on every dollar of profit. While she was working, franking credits allowed her (as they will still do, Ben) to avoid double taxation on corporate income by offsetting it against personal income. Labor is taking that benefit from retirees, and retirees alone.

We're not bagging the policy. We doubt Peter Costello ever intended to forego so much revenue. Treasury and the ATO certainly didn't.

And for the record, Davison's employer is a non-profit which contributes no tax whatsoever. And this wasn't his only wrong-headed contribution. He also accused fund manager Geoff Wilson, leading the charge against the policy, of standing to lose personally from it.

But unlike Jean, Geoff is still working. Like Ben, Geoff can absolutely continue to benefit from the tax benefits of fully franked dividends.

What's more, Davison (a star MBA graduate of Melbourne University) notes that Wilson "owns the majority of [WAM Capital]". Nonsense. Davison has confused the director share interests with the LIC as a whole. Of the 713 million shares on issue, Wilson owns less than 0.04 per cent of them.

Then Davison claims Wilson's fund WAM Capital's largest holdings are in companies that pay fully franked dividends, a factor, he suggests, in the LIC's declining share price from late 2018. "The market is aware that WAM Capital, regardless of Mr Wilson's personal exposure to this policy, might have a problem," Davison states. If Davison had pulled up the All Ordinaries while he was looking at WAM Capital's performance, he might have twigged that it was far from alone in having a crummy few months.

As for holding companies which pay fully franked dividends, that's not proof of direct self-interest, it's proof of a capital steward advocating his customers' interests. Sure, one begets the other, but that's a critical distinction.

It is true that the 30 years of stable tax treatment since Paul Keating's 1987 budget has encouraged retirees to invest in Australian equities. That's benefited every money manager and their superannuants (including those operated by the union movement Ben toils for). Presumably the ACTU hasn't forgotten that guy PJK, or his economic deregulation ally Bill Kelty? We're pretty sure the latter's bust, at least, stands in the lobby.

satanoperca said:

Hi Bill, can you help me as I am trying to help my retired parents with this as they are upset about these proposal by Labor.

They have shares in their SMSF which they do not pay tax on as they are in pension phase. If franking credits are removed under your example they will receive $9K which they pay no income tax on if all shares are held in the SMSF. So franking credits is a zero end game in this case.

But if Mom has $100K in her personal name, she will be $3K worse off, as she will not get the franking credits.

Have I got something wrong?

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I have just been told by HelloU that it will not affect the little old lady with the small share portfolio in her own name if she is collecting a government pension. So it seams to me it is only SMSF's that are affected. The real question is do you trust Labor not to interfere further with retirees savings? When the noise first started about this I made a clear comment that it should stay the way it is.

It will affect me so I do not want it go ahead. I draw a pension from super tax free. But I also have a small portfolio of shares outside of super to supplement my private pension income. Currently I earn around the tax free threshold (18K a year) in income. Because I am under the threshold I get all my franking credits rebated. I think I got back about $3,000 this tax year. Because I am not on welfare, under the Labor proposal I will lose that $3,000 year tax refund. Why would I vote for them to steal $3,000 from me? This is the big question.

Disability support pension is what long term welfare recipients are on. Disgrace.

Got a neighbour on it. Just turned 60, does weeding, mows lawns, chops wood, walks, talks, builds things.

Subsidized housing.

Been on it most of life. Very confronting when you get up and go to work and get zero benefits from GOV.

Sit down with someone at Centre link and they will tell you how many weeks until you get assistance.

Bill M said:

Why would I vote for them to steal $3,000 from me? This is the big question.

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You wouldn't, but would you have voted for them if they did not change the franking credit system ?

This is Labor's gamble, they are hitting people who would most likely not vote for them and giving the dough to those who would.

No different to Howard's Work"choices" policy.

Bill your money outside of super is the target. Or the non working partner .

It will go to the scabs in public housing and welfare recipients