Dividend franking credits

[Toyota Lexcen]

They have made their own interpretation of the survey? Why don’t they credit ABS correctly for it?

Seems suspicious to not credit it correctly

 

[Brickie2]

They have made their own interpretation of the survey? Why don’t they credit ABS correctly for it?

Seems suspicious to not credit it correctly

Go to the original story and look under the pictures of the graphs. The first two state Survey of Income and Housing 2015. That is the ABS report. Gratten Institute used that survey for the information in their report. The creation of the graphs to reflect the information in the survey would be the work of the Gratten researchers
They don't have the capacity or the independent credibility to undertake such a survey.

http://www.abs.gov.au/household-income
http://insidestory.org.au/the-real-story-of-labors-dividend-imputation-reforms/

This report 14-15 Yr, all before the 1.6 Million limit imposed so figureswill be all wrong.

 

[Smurf1976]

It is an independent source. It comes from the ABS Survey of Income and Housing 2014-15. They have just used it in their analysis.

Does it strike you as intriguing that 43% of the wealthiest 10% of Australians over 65 have an official taxable income less than $18k ? Does that help explain concern where most of $5b a year of imputation refunds is going ?

That suggests we should outlaw whatever method is being used by the wealthy to hide their income.

It doesn’t seem like a good reason to punish Joe Average blue collar worker who owns some shares and managed funds outside of super and plans to retire at age 55 as a self funded retiree.

They’re the ones I’m concerned about and there are quite a few such people.

I know a few and they’ve all worked hard I see no reason to be punishing them now whilst continuing to allow the full value of franking credits to those on high incomes.

Those who do use tricks to avoid tax will, of course, just find another way to go about it.

But sure, if they want to close loopholes for the wealthy then go right ahead but I see no reason to hit those who’ve simply worked in ordinary jobs and invested to support themselves in retirement without relying on welfare.

 

[SirRumpole]

but I see no reason to hit those who’ve simply worked in ordinary jobs and invested to support themselves in retirement without relying on welfare.

A refund of something not paid in the first place could be regarded as welfare.

 

[Smurf1976]

A refund of something not paid in the first place could be regarded as welfare.

Shareholders are part owners of a company.

Company pays tax and, having done so, pays lower dividends than if the company had not paid tax. Ultimately company tax is paid by the owners of the company - shareholders.

Now what Labor proposes is:

High income earners - yes you can consider tax paid by the company on your behalf as tax already paid. So you won’t pay that tax a second time as income tax. Your total tax will be as per the progressive income tax scales.

Low income earners - no sorry but you can’t consider tax paid by the company on your behalf as tax already paid. This is only available to higher income earners. Your total tax will be higher than if you had earned the same money any other way.

If Labor truly believes that the income tax scales are inappropriate and that low income earners should pay more tax then why not just say so and adjust the rates?

The only logic I can see in this is if the real aim is to discourage ordinary middle and lower income workers from investing in anything other than a superannuation fund. So that stops those who’d retire early and so on from doing so.

 

[Zaxon]

A refund of something not paid in the first place could be regarded as welfare.

Think of it this way. A housewife, Kathy, works for BHP as a part time tea lady and earns $10k per year. BHP's accounting department takes out withholding tax (incorrectly). At the end of the yeah, Kathy, who earns below the taxable threshold, gets her tax refunded in full.

Housewife Cathy, Kathy's sister, doesn't work but gets $10k per year in BHP dividends. BHP has already paid tax on this dividend. Under the Labor's new law, Cathy, who earns below the taxable threshold, gets NO tax refunded.

Both earn $10k. One pays tax, the other doesn't. This sounds fair to very few people.

 

[Smurf1976]

Both earn $10k. One pays tax, the other doesn't. This sounds fair to very few people.

That's what it comes down to.

It doesn't affect me personally at this point in time but the policy seems extremely unjust to be applying vastly different rates of taxation to the same level of income on account of how it were gained so long as we're talking about legitimate employment or investments.

If they want to improve taxation then closing all the loopholes would seem much fairer. Stuff like multi-nationals not paying tax - hold them to account. Eg if their physical operation is really so unprofitable that no tax is payable then they should have no objection to government taking it off their hands for a token payment which reflects its complete lack of profitability.

They'd only need to do that once and all of a sudden quite a few businesses will suddenly realise they're profitable after all and start paying tax I'm sure.

 

[basilio]

High income earners - yes you can consider tax paid by the company on your behalf as tax already paid. So you won’t pay that tax a second time as income tax. Your total tax will be as per the progressive income tax scales.

Low income earners - no sorry but you can’t consider tax paid by the company on your behalf as tax already paid. This is only available to higher income earners. Your total tax will be higher than if you had earned the same money any other way.

Smurf you have mentioned a number of times your concern with what you see as unfair treatment of low income earners who somehow receive credits for shares delivering fully franked dividends they have managed to have. This is vs High income earners who you see as getting full value for the shares.

I think you have misinterpreted/misunderstood the situation.
By definition a high income earner (ie taxable income $50-60k plus lol!) will have a tax bill that will be reduced by the franking credits attached to the dividends. The situation of the high income person getting a cash refund of the franking credits only happens when they have managed to reduce their income to less than $18k or the refund credits are so large they swamp whatever tax they might be liable for. That says they have a substantial share portfolio yielding many thousands of dollars in credits.

Our very special low income earner somehow has a real income (not creative accountancy work ) of $30k a year but also has a share portfolio delivering him/her of thousands of dollars of franking credits. These are credits you suggest will be unfairly denied.

The facts are

1) There are $5billion a year of franking credits (our taxes..) given out each year. The overwhelming amount is going to the people who have managed to use this special loop hole to create tax structures that will enable such a lurk. Trying to keep such a system going because in theory a very few poorer investors will lose some credits doesn't make sense. One may as well put aside $30m and say " If you are in such a category and can prove so we will allow your credits"

2) The other category of low income earners receiving franking credits will be the partners and children of wealthy people. If one is already making a ton of money then putting $300k of bank shares in your (non working) wifes name is canny. She gets dividends which won't be taxed up to $20k AND will get the franking credits as well. Sweet! And that is almost certainly part of the portion of non tax paying people receiving these credits.

The figures I produced earlier show just which part of the community is using this lurk to enrich themselves at the expense of the wider public. Trying to point to a hypothetical/mythical toilet cleaner on $40k losing some hundreds even thousands of dollars of franking credits as an excuse to keep this system is ridiculous.

_____________________________________________________________________
Having said that can you or anyone else accurately demonstrate the problems that you believe will occur for medium investors ? Perhaps it is these issues that can be recognised and tweaked.
And of course looking at the whole tax system for multinationals wouldn't hurt either..

 

[basilio]

Think of it this way. A housewife, Kathy, works for BHP as a part time tea lady and earns $10k per year. BHP's accounting department takes out withholding tax (incorrectly). At the end of the yeah, Kathy, who earns below the taxable threshold, gets her tax refunded in full.

Housewife Cathy, Kathy's sister, doesn't work but gets $10k per year in BHP dividends. BHP has already paid tax on this dividend. Under the Labor's new law, Cathy, who earns below the taxable threshold, gets NO tax refunded.

Is that your work Zaxon or did you read it in one of one the BS propaganda pieces being thrown around by the financial advisors to the rich but "not paying tax" group.?

Kathy the tea lady is working and earning less than $18k a year has paid tax herself during the year. When tax time comes she tots up her income and will get back the tax she paid because she is not liable for it.

Her "sister" (what a lovely touch) has an investment in $200k of BHP shares which is yielding 5% (10k dividends) . She didn't pay any tax in the financial year to get a refund. In fact her investment return of 5% is quite healthy thank you very much. And of course she won't be paying any tax on these dividends (Thank you to her hubby and financial advisor who suggested this little deal)
But now you want the tax payer to chip in another $3k as well because after all that is what financial advisors are there to do isn't it ?

 

[sptrawler]

Is that your work Zaxon or did you read it in one of one the BS propaganda pieces being thrown around by the financial advisors to the rich but "not paying tax" group.?

Well Bas, if he did, it isn't any worse than the BS, you threw up about all super could be passed on tax free.
So before you bad mouth someone else, get your own act together, not wanting to be personal.
But I just hate bullies.

 

[HelloU]

Think of it this way. A housewife, Kathy, works for BHP as a part time tea lady and earns $10k per year. BHP's accounting department takes out withholding tax (incorrectly). At the end of the yeah, Kathy, who earns below the taxable threshold, gets her tax refunded in full.

Housewife Cathy, Kathy's sister, doesn't work but gets $10k per year in BHP dividends. BHP has already paid tax on this dividend. Under the Labor's new law, Cathy, who earns below the taxable threshold, gets NO tax refunded.

Both earn $10k. One pays tax, the other doesn't. This sounds fair to very few people.

so both of those people had the same taxable income of $10,000 ........

but one of them took home the full $10K,
whilst the other took home $7K.

that will be the new system - for identical people - where the exact same assessable incomes, the exact same deductions and so the exact same taxable incomes, will result in different amounts of after tax money in the pocket.

Do people actually want that?
(unless peeps are about to argue that the tax scales for PAYE income should be different to the tax scales for investment earnings income?)

(the irony being that under the new system if Cathy -$7K lady - can get onto welfare then she keeps it all again)

 

[sptrawler]

2) The other category of low income earners receiving franking credits will be the partners and children of wealthy people. If one is already making a ton of money then putting $300k of bank shares in your (non working) wifes name is canny. She gets dividends which won't be taxed up to $20k AND will get the franking credits as well. Sweet! And that is almost certainly part of the portion of non tax paying people receiving these credits.

What if that person, is a FIFO worker, so he spends a lot of time away and the wife looks after the kids?

 

[HelloU]

by basilio
"But now you want the tax payer to chip in another $3k as well because after all that is what financial advisors are there to do isn't it ?"
there is no "chip in" of anything

the amount you talk about forms part of the taxable income of that person. Taxable income is a term used by the tax office - for tax returns - to determine income tax.

the amount of income tax that is paid is determined from the taxable income by using a thing called a tax table.

the tax table is the device used to determine how much tax should be paid for a particular annual taxable income.

rather than a system where all tax is paid in a lump sum at the end of the year we use, in australia, a system where lots of small tax payments are made all through the year to the tax office - this is on the basis that if you pay too much through the year you can get the excess back ..... or similarly, if you did not pay enough then you must pay some more to square it up.

in fact, if you need to pay extra income tax then interest is sometimes added to the amount because that is considered to be a situation where you have "borrowed" from the tax payer for a while (so been in debit).this may be a case of "chipping in" by the tax payer, to carry your debt for a period, and is why interest is charged to the individual.

it is the paying back of the excess paid tax, with respect to taxable income, that is being discussed.

 

[Zaxon]

Is that your work Zaxon or did you read it in one of one the BS propaganda pieces being thrown around by the financial advisors to the rich but "not paying tax" group.?

So before you bad mouth someone else, get your own act together, not wanting to be personal.
But I just hate bullies.

Basilio, every post you've directed to me, which started today, has been bullying and belittling. Welcome to my ignore list. You're my first and only.

 

[sptrawler]

A refund of something not paid in the first place could be regarded as welfare.

What like a Government pension?

 

[Smurf1976]

Smurf you have mentioned a number of times your concern with what you see as unfair treatment of low income earners who somehow receive credits for shares delivering fully franked dividends they have managed to have. This is vs High income earners who you see as getting full value for the shares.

To clarify what I'm saying:

My concerns are in relation to what I'll call "ordinary workers" in that their income, taken over their working life thus far, hasn't been an order of magnitude greater than normal. So they're not bank CEO's and they're not internationally famous celebrities and so on. Normal people in normal jobs etc.

Depending on when you were born, superannuation is preserved until age 60. As such, it is an ineffective investment vehicle for money you may want to access prior to this time.

Some people will thus choose to save and invest outside of super in addition to having compulsory super. This maybe because they believe there's a credible chance they'll be forced to retire early due to whatever reasons or simply because they want to.

Regardless of their motive they are investing money they have already worked to receive, have paid the full rate of income tax on and they will also be paying income tax at their marginal rate on whatever income those investments produce whilst they are working. Plus any realised capital gains will also be taxed.

In doing so they will have excluded themselves from receiving the dole should they at any time be unemployed. Much the same with various other things.

Now if such a person does find themselves retired at age 53 for whatever reason and has zero income other than from their investments, which they bought with money that was already taxed, then to me it seems incredibly harsh to then tax the income of those investments at the company tax rate (30%) rather than at the individual's normal income tax rate.

From a purely personal perspective Labor's proposal has no immediate impact. I do however have investments outside super for the reasons I've mentioned. I've seen far too many people, of varying backgrounds and both genders, thrown on the unemployment scrap heap in their 50's to think it couldn't happen to me. Anyone who thinks they're bulletproof hasn't seen a recession.

Now if I did find myself needing to rely on my investments with no other income well suffice to say I could sure do without being heavily taxed at that time. I've already paid tax on the money invested, I'm already paying more tax because I've chosen to invest it rather than spend it and I've already done myself out of any potential welfare payments. The prospect of paying company tax rates on what's left, in the event life takes a turn for the worse and I really do have no other income, seems totally unreasonable given that in any other situation normal rates of income tax would apply to the same level of income.

As someone who has always sought to be financially self-sufficient and to not become reliant on welfare, and I include the aged pension in that, this policy looks awfully like it's motivated by politics and punishment rather than any rational thinking.

Now if by chance I've misunderstood how this policy works then I'll stand corrected. Getting that info hasn't been straightforward and there's a lot of misinformation out there as with anything. That's my understanding of it though - if you've legitimately got no other income then Labor will in practice make your franking credits worthless meaning you're paying a 30% rate of tax on a low income.

 

[HelloU]

To clarify what I'm saying:

My concerns are in relation to what I'll call "ordinary workers" in that their income, taken over their working life thus far, hasn't been an order of magnitude greater than normal. So they're not bank CEO's and they're not internationally famous celebrities and so on. Normal people in normal jobs etc.

Depending on when you were born, superannuation is preserved until age 60. As such, it is an ineffective investment vehicle for money you may want to access prior to this time.

Some people will thus choose to save and invest outside of super in addition to having compulsory super. This maybe because they believe there's a credible chance they'll be forced to retire early due to whatever reasons or simply because they want to.

Regardless of their motive they are investing money they have already worked to receive, have paid the full rate of income tax on and they will also be paying income tax at their marginal rate on whatever income those investments produce whilst they are working. Plus any realised capital gains will also be taxed.

In doing so they will have excluded themselves from receiving the dole should they at any time be unemployed. Much the same with various other things.

Now if such a person does find themselves retired at age 53 for whatever reason and has zero income other than from their investments, which they bought with money that was already taxed, then to me it seems incredibly harsh to then tax the income of those investments at the company tax rate (30%) rather than at the individual's normal income tax rate.

From a purely personal perspective Labor's proposal has no immediate impact. I do however have investments outside super for the reasons I've mentioned. I've seen far too many people, of varying backgrounds and both genders, thrown on the unemployment scrap heap in their 50's to think it couldn't happen to me. Anyone who thinks they're bulletproof hasn't seen a recession.

Now if I did find myself needing to rely on my investments with no other income well suffice to say I could sure do without being heavily taxed at that time. I've already paid tax on the money invested, I'm already paying more tax because I've chosen to invest it rather than spend it and I've already done myself out of any potential welfare payments. The prospect of paying company tax rates on what's left, in the event life takes a turn for the worse and I really do have no other income, seems totally unreasonable given that in any other situation normal rates of income tax would apply to the same level of income.

As someone who has always sought to be financially self-sufficient and to not become reliant on welfare, and I include the aged pension in that, this policy looks awfully like it's motivated by politics and punishment rather than any rational thinking.

Now if by chance I've misunderstood how this policy works then I'll stand corrected. Getting that info hasn't been straightforward and there's a lot of misinformation out there as with anything. That's my understanding of it though - if you've legitimately got no other income then Labor will in practice make your franking credits worthless meaning you're paying a 30% rate of tax on a low income.

your understanding is correct on the application of this policy ...........with clarification of the last sentence.

you wrote "if you've legitimately got no other income then Labor will in practice make your franking credits worthless meaning you're paying a 30% rate of tax on a low income".

If this same person can get welfare (dole, sickness, etc) then they will get the credits back (as well as getting the welfare payments.

i do not understand a government policy that introduces incentives for being on welfare.

 

[basilio]

Well Bas, if he did, it isn't any worse than the BS, you threw up about all super could be passed on tax free.
So before you bad mouth someone else, get your own act together, not wanting to be personal.
But I just hate bullies.

I was sharp with Zaxon. Couple of points though.
1) I directly addressed the issues he raised. The two nominal women have quite different situations as I pointed out.
2) Yes I did think this particular example sounded very much like a point from a "stop the tax hike" story put out by Wilson and co. I could be wrong and in fact Zaxon has crafted it himself. That doesn't change, in my mind, the different situations which have been confabulated for the purpose of this discussion.

By the way my throwing up that super could be passed on tax free? I was quoting in good faith a story from the SMH. I wasn't saying it as my personal understanding.

I would like to know what the facts are. It is a serious mistake if Jenna Price has made an error in her story. Poor research and weakens the argument.

 

[Triple B]

Is it possible to elect to not have the franking credits paid by the company? Therefore you receive the dividends 100% and deal with the tax at your marginal rate . Perhaps if this was a policy ,people on lower marginal rates could receive the franked part and pay no tax as they may be under the tax free threshold?
This also has an advantage of being able to re-invest the unfranked dividends on payment .
I can see that in the future companies may start to pay divs un franked if Labours plan succeeds.
You get your $ before the Govt does,,,,, always a good thing I reckon

 

[Zaxon]

Is it possible to elect to not have the franking credits paid by the company? Therefore you receive the dividends 100% and deal with the tax at your marginal rate .

No. Companies have taxation requirements set by ATO rules and accounting standards. The commonest source of unfranked dividends are REITS, since they distribute earnings from a trust and pass them straight onto you, and companies with overseas earnings.

This is other "fail" in Labour's proposed policy. If you receive unfranked dividends, you pay at your marginal tax rate (outside of super), and if you're below 18K, you pay no tax. If you receive franked dividends, then sorry, we've taken 30%, and you're not getting that back.