Dividend franking credits

Bill M said:

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.

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They are not stealing and if you are in pension phase it should not effect you, talk about being entitled

satanoperca said:

They are not stealing and if you are in pension phase it should not effect you, talk about being entitled

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As that is outside of super it gets taken away from me as I am not on welfare. Anything that is taken away is theft in my books. I have paid taxes all my life. The companies I invest in are paying me franked dividends with imputation credits. In other words everything has ALREADY been taxed and my 3K will not be refunded. This is **** policy, Labor wants to take my 3k tax refund away from me because they deem me to be the top end of town on 18k a year income outside of super. That is what is laughable, 18 friggin k. This is not super rich! Why would anyone in their right mind vote for these clowns? I will finish where I started, I am not on welfare.

Toyota Lexcen said:

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

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Absolutely.

My friends on govt pensions love cancelling the franking credits!
-- raising taxes and they are paying zero!!

I imagine for retired SMSF funds in excess if $1.6 million will pay tax on extra income and be able to claim the franking credits
-- if right, the super rich are getting it good and the poorer SMSF funds under $1.6 million are getting slugged!

We need to see govt. pensions taxed especially the many politicians on pensions in excess of $200,000 where many have new employment

Andrew Robb is now working for the Chinese on $800,000. He helped setup the companies operating in Australia and now employ him

Joe Hockey in on a pension and being paid as US ambassdor

Please correct me if I am wrong with over the treatment for the $1.6 million SMSF

For folk that do not have a SMSF and own shares will be slugged if they do not prepare a tax return

Bill M said:

As that is outside of super it gets taken away from me as I am not on welfare. Anything that is taken away is theft in my books. I have paid taxes all my life. The companies I invest in are paying me franked dividends with imputation credits. In other words everything has ALREADY been taxed and my 3K will not be refunded. This is **** policy, Labor wants to take my 3k tax refund away from me because they deem me to be the top end of town on 18k a year income outside of super. That is what is laughable, 18 friggin k. This is not super rich! Why would anyone in their right mind vote for these clowns? I will finish where I started, I am not on welfare.

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Bill, if you are on $18k a year (which then becomes $15k a year because of loss of credits) are you likely to have to then claim some welfare to recover the $3k a year loss?

PZ99 said:

Bill, if you are on $18k a year (which then becomes $15k a year because of loss of credits) are you likely to have to then claim some welfare to recover the $3k a year loss?

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No, I can only get low income tax offsets. I'm not 67 (pension age) and can not claim anything on welfare anyway.

PZ99 said:

Bill, if you are on $18k a year (which then becomes $15k a year because of loss of credits) are you likely to have to then claim some welfare to recover the $3k a year loss?

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Every retiree, I know who are above the pension cutoff limit, are spending to get under it.
The latest one his wife has qualified for part pension, yet he hasn't.
But it works on combined assets and combined income, shows how disjointed the ATO is, he is going to see the ombudsman.
In the end the only ones Bill will catch, are the workers who buy shares, in their non working spouses name.
Then I guess he will have to come after the workers, because the majority of elderly, will be on the pension.
Also they will get their franking credits back, what a hoot.
The dumb pricks, should have stuck with taxing pensions and or earnings, above a certain amount.

Wouldn't it be just easier for Labor to say, we will tax pensions above $50K at 15% and pensions above say $75K at 30%. That cancels the franking credit, at an income level.
But that still wouldn't force SMSF to close down, and pay a retail or industry fund, management fees.
So Labor wouldn't wear that.IMO

sptrawler said:

Wouldn't it be just easier for Labor to say, we will tax pensions above $50K at 15% and pensions above say $75K at 30%. That cancels the franking credit, at an income level.
But that still wouldn't force SMSF to close down, and pay a retail or industry fund, management fees.
So Labor wouldn't wear that.IMO

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The other problem with taxing pensions, above a certain level, it would be too easy to tax the politicians' pension's then.

sptrawler said:

But that still wouldn't force SMSF to close down, and pay a retail or industry fund, management fees.

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Most policies I can follow the logic in even if I don't agree with them as such.

I must say though that this policy of Labor's does have a certain "smell" to it and that's a worrying sign from a probable future government that hasn't even been elected yet.

I'm not at all keen on the Liberals but I'm not keen on this policy of Labor's either and that's about principles and long term effects far more than anything of a personal nature. There is quite simply no need to hit the lower half whilst retaining full benefits of the scheme for high income earners, that's just wrong.

Smurf1976 said:

Most policies I can follow the logic in even if I don't agree with them as such.

I must say though that this policy of Labor's does have a certain "smell" to it and that's a worrying sign from a probable future government that hasn't even been elected yet.

I'm not at all keen on the Liberals but I'm not keen on this policy of Labor's either and that's about principles and long term effects far more than anything of a personal nature. There is quite simply no need to hit the lower half whilst retaining full benefits of the scheme for high income earners, that's just wrong.

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The problem is smurf most aren't seeing it for what it is, a direct hit on middle income Australians.
There is no point debating it, most just can't see it, but they will once it is enacted. IMO
Once a middle income earner ,wants to start investing, the penny will drop.

Putting aside the arguments for or against this policy and acting on the assumption that it will be implemented, I think the best we can do as investors is focus on the broader implications.

Anyone have thoughts as to the impacts on broad asset classes or individual companies?

Smurf1976 said:

Anyone have thoughts as to the impacts on broad asset classes or individual companies?

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I will have to re-think all of my franked dividend paying stocks outside of super. I invest in quite a few hybrid securities as they pay regular distributions and are less volatile than shares. Several of these are out there, some examples are CBA PERLS series or Capital Notes from other banks and companies. Nearly all of these products were marketed as products that paid fully franked dividends with franking credits to the stock holder, a rebate of franking credits to low income earners if you are one. Now if the Labor party steal these imputation credit rebates then I have to re-think all of these investments as they are a bit too risky for the lower return.

It will most likely drive down prices of the hybrid securities as the risk is not worth the reward. Then the banks and other companies will need to pay more of a margin for these issues in the future which will come at a higher cost otherwise no one will invest in them. Why should I buy a hybrid security to get 5% (with all their risks) with the franking credits lost forever when I can buy a Corporate Bond with a 7% payment with no franking or any losses? Low income earners come off worse with this policy, it is going to hit those that need it most. It has not been thought through.

Smurf1976 said:

Anyone have thoughts as to the impacts on broad asset classes or individual companies?

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I personally, would be staying away from anything, involving residential real estate.

Bill M said:

I will have to re-think all of my franked dividend paying stocks outside of super. I invest in quite a few hybrid securities as they pay regular distributions and are less volatile than shares. Several of these are out there, some examples are CBA PERLS series or Capital Notes from other banks and companies. Nearly all of these products were marketed as products that paid fully franked dividends with franking credits to the stock holder, a rebate of franking credits to low income earners if you are one. Now if the Labor party steal these imputation credit rebates then I have to re-think all of these investments as they are a bit too risky for the lower return.

It will most likely drive down prices of the hybrid securities as the risk is not worth the reward. Then the banks and other companies will need to pay more of a margin for these issues in the future which will come at a higher cost otherwise no one will invest in them. Why should I buy a hybrid security to get 5% (with all their risks) with the franking credits lost forever when I can buy a Corporate Bond with a 7% payment with no franking or any losses? Low income earners come off worse with this policy, it is going to hit those that need it most. It has not been thought through.

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I've always favoured the superior dividends from owning bank shares over the capital notes and CBA PEARLS etc. Different risks of course.

My mum as a self funded retiree has done well out of the Costello/Howard largesse. She was able to stuff all her life savings into a SMSF while avoiding paying tax in her final working years and for years has not paid a cent in tax and has sat back and received a cheque from the ATO every year on top of that! She hasn't had to pay a cent in income tax for years to help pay for the training and education of the kids that are going to have to pay tax to pay for the public goods and services like health that she is going to keep using for years.

My attitude has always been milk it while you can because it can't last. When these overly generous concessions were being made earlier this century all the smart commentators and economists were saying it can't last.

Right now NAB, for example is yielding 8%. Risky? Of course, you can't expect 8% return without carrying some exposure to cyclical risk. Plenty of opportunity out there to make a few bucks from your savings.

tinhat said:

My mum as a self funded retiree has done well out of the Costello/Howard largesse. She hasn't had to pay a cent in income tax for years to help pay for the training and education of the kids that are going to have to pay tax to pay for the public goods and services like health that she is going to keep using for years.

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As it reads, your mother is saving the taxpayer a fortune by not collecting the pension, instead paying her own way. In addition, she's paying GST on everything - that's tax - and getting no concession on registration, rates, gas and power, saving us all even more money.

Zaxon said:

As it reads, your mother is saving the taxpayer a fortune by not collecting the pension, instead paying her own way. In addition, she's paying GST on everything - that's tax - and getting no concession on registration, rates, gas and power, saving us all even more money.

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Like I said earlier people can't see it, take $3,000 franking credit off her, give her $20,000 in pension. As long as she leaves $250k in assett's can't be all bad, who knows tinhats mum may end up better off?
I know when I get back from the up coming cruise, I'm buying a new bike.
Also if Musk gets his act together, I may beat VC to buy one.

It's the inequality of the proposed policy. The ALP is purportedly aiming at the wealthy. This proposed policy does not do this.

Either cancel franking credits altogether (bad), or cap the amount that can be claimed (fairer, but still bad policy) rather than be biased to essentially SMSFs.

Arrogant labour, putting out a class warfare policy

Points in article include:

Davidson, who is a professor of economics at RMIT University and an adjunct fellow at the Institute of Public Affairs, found that 56 per cent of those who receive the cash rebate are women, 68 per cent of whom are over the age of 60, and 47 per cent of whom are either single or widowed.

Labor is coming after apple pie-baking nanas, not monocle-wearing monopoly men.

Inter-generation inequity is a legitimate concern but the best way to resolve it is to reduce government spending and pay down the debt, not hit nanna with another tax.
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https://ipa.org.au/publications-ipa/the-dividends-of-ageing

Labor Is Coming After Apple Pie-Baking Nanas
Daniel Wild 1 February 2019

On Thursday, Labor’s Shadow Treasurer Chris Bowen said something that a politician is never supposed to utter. At least not in public.

In response to those who will face higher taxes under Labor’s proposed changes to Australia’s dividend imputation system, Bowen said they were “entitled to vote against us”.

On one level this is unobjectionable as it describes the democratic process — don’t like one mob, just vote for the other.

But the reason that comment has rubbed so many people up the wrong way is it shows that one side of politics just doesn’t care about those who would be hurt by their policies.

It sends a message that if you are not going to vote for Labor then Labor will not govern for you.

So much for the idea of the national interest. But Bowen and Labor should care more. Under their latest proposal to hike up taxes, cash refunds for retirees for so-called excess franking credits from shares they hold would be abolished.

This would result in some $55 billion in extra taxes being levied on Australian retirees.

It would also partially undo an important feature of Australia’s tax system. Without franking credits corporate income would effectively be taxed twice.

First corporate profits are taxed at the company tax rate, which is 30 per cent for large businesses. This is close to the highest corporate tax rate in the world.

Second, businesses pay dividends out of income which has already been taxed.

This means when shareholders pay tax on those dividends, they are paying tax on income which has already been taxed. The franking credit system gets around this by allowing the corporate tax rate to be deducted from the shareholder’s individual tax rate.

This means the extra tax paid above the corporate rate is the difference between the corporate rate and the shareholder’s marginal tax rate.

The rub is that many retirees do not work, or work very little, so they have a low or zero marginal income tax rate. This means that the difference between the company rate and their marginal rate can be negative. In this case the shareholder receives a rebate. And it is this rebate that Labor wants to eliminate.

Labor likes to conjure up images that only old rich men chomping on cigars have the know-how to exploit this feature of Australia’s tax system.

But recent analysis by Professor Sinclair Davidson revealed some interesting facts.

Davidson, who is a professor of economics at RMIT University and an adjunct fellow at the Institute of Public Affairs, found that 56 per cent of those who receive the cash rebate are women, 68 per cent of whom are over the age of 60, and 47 per cent of whom are either single or widowed.

Labor is coming after apple pie-baking nanas, not monocle-wearing monopoly men.

What is worse, though, is that the changes would be retrospective meaning they would apply to decisions already made.

This is a particular problem for retirees given that plans for retirement are made over a period of years and decades. Not that the Coalition government can complain.

It did, after all, propose its own retrospective tax hikes on self-funded retirees through the superannuation system in 2016.

If the Coalition was committed to lower taxes it would have more credibility in opposing Labor’s tax hikes.

Perhaps one positive to come out of Labor’s proposed tax hike, though, is it has brought up concerns about inter-generation political warfare.

Opponents of Labor’s proposed tax hike claim Labor is setting up a battle between older self-funded retirees and younger working families.

This criticism has some merit but it misses the broader and intense inter-generations battle that has been raging for some time.

For years it has been the Baby Boomers who have dominated politics. There are a lot of them and they are for the most part wealthy.

They have benefited greatly from the differential tax treatment of superannuation, rising asset prices from low interest rates, and rising property values.

At the same time as the boomers have amassed great wealth, their younger cohorts in Generation Y (or Millennials born between 1977-1995) and Generation Z (born from 1996 onwards) have been left with some $500 billion in gross government debt at the Commonwealth level alone.

And every last cent of this debt will need to be paid back by today’s younger Australians through higher future taxes.

Inter-generation inequity is a legitimate concern but the best way to resolve it is to reduce government spending and pay down the debt, not hit nanna with another tax.

Let's be honest, what Labor is proposing is little more than white collar crime by government edict.
Hard times may be ahead for the aged and self funded.

We haven't even heard Labor's policy on private health insurance. I'm tipping it's not going to be good news for policy holders. It's no longer the Labor of Hawke and Keating.

A run on the aged pension. A run on public hospitals. A run on the national borders.