Federal Labor Party discussion

[Smurf1976]

We are one of only 4 countries in the OECD that allow this form of tax avoidance.

Two basic problems we've got in Australia:

1. Our corporate tax rate is relatively high by global standards.

2. All sorts of key industries are intentionally inefficient by design.

Put those two together and Australia's a high cost country in which to do business and that's without even considering wages and standards. Anyone doing business here has to hand rather a lot of money to others through taxation and mandated inefficiency.

End result is we're a country that's attractive only to those who are doing something they need to be here in order to do. Eg resource extraction.

 

[SirRumpole]

Two basic problems we've got in Australia:

1. Our corporate tax rate is relatively high by global standards.

2. All sorts of key industries are intentionally inefficient by design.

Put those two together and Australia's a high cost country in which to do business and that's without even considering wages and standards. Anyone doing business here has to hand rather a lot of money to others through taxation and mandated inefficiency.

End result is we're a country that's attractive only to those who are doing something they need to be here in order to do. Eg resource extraction.

I suspect low population and geographical isolation are factors as well.

 

[Value Collector]

Pretty unlikely , public companies must have at least 3 directors, but in any case the law says that directors an d shareholders are separate entities, shareholders can't be sued for company debts and vice versa.

That’s got nothing to do with it, and it’s no reason to create double taxation.

The fact is companies exist as a conduit to invest investors funds, if it does end up generating profits and those profits are handed back to individuals as dividends it makes sense to treat those profits as you would any other source of income on the persons tax return.

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A company structure is one of the few ways individuals of small means can access large scale investments, so why treat their earnings from these investments more unfairly than rich folks who can take on these larger investments directly?

 

[Value Collector]

If a company is constructed under the Companies Act , as far as I know the shareholders can't be sued for the debts of the company, they are separate entities and should be taxed separately.

That’s got nothing to do with taxation?

The limited liability rule was just a rule that was brought in to encourage people to invest, the economy does better when people are willing to invest in riskier ventures, but they won’t invest if they like their $10,000 investment in a speculative new mining venture means they could be sued for $1M and lose their house.

There is nothing immoral about that, everyone else understands that when you are dealing with an LTD or PTY LTD you are dealing with a limits liability company.

But again none of that is a reason to create extra taxation.

 

[SirRumpole]

That’s got nothing to do with it, and it’s no reason to create double taxation.

The fact is companies exist as a conduit to invest investors funds, if it does end up generating profits and those profits are handed back to individuals as dividends it makes sense to treat those profits as you would any other source of income on the persons tax return.

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A company structure is one of the few ways individuals of small means can access large scale investments, so why treat their earnings from these investments more unfairly than rich folks who can take on these larger investments directly?

I don't know if it's unfair.

Corporations pay tax and individuals pay tax, seems fair to me.

People who own unincorporated businesses take on a far greater risk, why should they pay higher taxes than investors whose risk is limited ?

 

[SirRumpole]

The limited liability rule was just a rule that was brought in to encourage people to invest, the economy does better when people are willing to invest in riskier ventures, but they won’t invest if they like their $10,000 investment in a speculative new mining venture means they could be sued for $1M and lose their house.

I have nothing against that, but it's not a reason to reduce the amount of taxes they would otherwise pay.

 

[Value Collector]

We are one of only 4 countries in the OECD that allow this form of tax avoidance. Thanks to the Libs and their massive debt and deficit we just can't afford it any more.

What are you talking about?

How is franking credits tax avoidance? All it does is mean the tax is paid based on an individual’s tax bracket.

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Other countries like the USA have other rules to limit the double taxation, for example in the USA dividends are only taxed at 15%

If you want to follow that rule I will be happy, because My earnings will be taxed at 33%, instead of the 47% they are taxed at under the franking credit system.

But, using the USA system the lowest income people will suffer, as their tax rate will still be 33% like mine, where as in australia the franking credit system allows their tax rate on their company earnings to be augmented to what ever it would be on other types of earnings.

 

[Value Collector]

I don't know if it's unfair.

Corporations pay tax and individuals pay tax, seems fair to me.

People who own unincorporated businesses take on a far greater risk, why should they pay higher taxes than investors whose risk is limited ?

So you think some one earning $10,000 from a term deposit in their own name should pay 0% tax, when some one that happens to have the exact same term deposit under a company structure should have a minimum tax rate of 30%?

Even though they are earning the exact same income you believe they should have different tax rates? How does that make sense?

There are many different structures partnerships, some traders, trusts, companies, unit trusts etc we always treat the income from all those structures when they pass through to an individual the same way, to achieve that with companies we use franking credits.

 

[SirRumpole]

A company structure is one of the few ways individuals of small means can access large scale investments, so why treat their earnings from these investments more unfairly than rich folks who can take on these larger investments directly?

So you don't mind if retirees on $200k from superannuation (tax free) actually get a refund of franking credits, whereas people still working have to pay tax on their dividends ?

If you are concerned about fairness you have to agree that this is a crock.

 

[SirRumpole]

So you think some one earning $10,000 from a term deposit in their own name should pay 0% tax, when some one that happens to have the exact same term deposit under a company structure should have a minimum tax rate of 30%?

Non sequitur.

 

[Value Collector]

I have nothing against that, but it's not a reason to reduce the amount of taxes they would otherwise pay.

It’s no reason for them to pay extra taxes either.

Don’t think about franking credits as people paying less tax, think of it as a way to stop double taxation, and instead augment the tax payable to what that person would pay on any other source of income.

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Also remember it only applies to the portion of earnings paid out as a dividend, any money the company retains is still taxed at 30%.

 

[Value Collector]

Non sequitur.

How so?

 

[Value Collector]

So you don't mind if retirees on $200k from superannuation (tax free) actually get a refund of franking credits, whereas people still working have to pay tax on their dividends ?

If you are concerned about fairness you have to agree that this is a crock.

I think this is where you are thinking about it in the wrong way.

The $200k the retiree makes in her super will be tax free regardless of its source,

There is no difference in her earning $200k in property rent or bank interest and keeping it all tax free because she is being charged 0% tax

Or

Earning $200k inside a company paying $60k company tax, then being paid the remaining $140k as a dividend and getting a refund of the $60k

Both investors end up with their $200k earnings tax free.

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If you want wealthy retirees to pay more tax raise the tax rates of super funds, then all the investors will pay tax at the same rate regardless of structure.

 

[SirRumpole]

If you want wealthy retirees to pay more tax raise the tax rates of super funds, then all the investors will pay tax at the same rate regardless of structure.

Probably a good argument there.

 

[Value Collector]

Probably a good argument there.

I wouldn’t have an issue with super fund income being subject to some sort of tax bracket system, even if it was much lower than regular rates. (Eg 0% under $40k, 10% $40k - $100k etc)

That would be fair, because it would mean all income is subject to the same taxation.

The debate over franking credit refunds makes no sense though, as I said if you don’t want to refund as much to wealthy retirees just raise the tax rate.

But it’s bogus to try and demonise the refunds, because the refunds only have to be refunded because the tax has already been paid, and there is no difference between allowing one investor to keep earnings tax free and refunding another tax already paid, the end result is the same.

 

[SirRumpole]

But it’s bogus to try and demonise the refunds, because the refunds only have to be refunded because the tax has already been paid, and there is no difference between allowing one investor to keep earnings tax free and refunding another tax already paid, the end result is the same.

There is double taxation all around.

The petrol we buy has already been taxed (fuel excise) yet we still pay GST on it. How about refunding the 40c a litre from the total price ?

 

[Value Collector]

There is double taxation all around.

The petrol we buy has already been taxed (fuel excise) yet we still pay GST on it. How about refunding the 40c a litre from the total price ?

Those are different taxes, you don’t have to pay GST twice or Fuel excise twice, imagine if the petrol station had to pay fuel excise when it bought the fuel, and then you paid it again when you purchased from the fuel station.

But with investment earnings under a company structure with out franking credits you would be taxing the same profits twice.

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Also, I am. It sure if you have ever owned a business and understand how it works, but when a product is sold and GST is charged, all prior GST is deducted so that double taxation of GST is prevented. This is very similar to frank in credits.

Eg. If shop owner pays $1.10 for a product he has already paid 10cents GST, so when he sells it to you for $2.20 it will say on your receipt you paid 20cents GST, but the shop owner doesn’t pay the government the full 20cents he deducts the 10cents he paid to his supplier, and hands along only the additional 10cents he collected from you.

This is to prevent double, triple or quadruple GST taxation as products pass through the supply chain, and ensures only the final sale price is taxed, this is very similar to franking credits.

 

[SirRumpole]

This is to prevent double, triple or quadruple GST taxation as products pass through the supply chain, and ensures only the final sale price is taxed, this is very similar to franking credits.

From the business point of view, fine, the consumer is still double taxed.

 

[Value Collector]

From the business point of view, fine, the consumer is still double taxed.

Not really, they are different taxes setup for different purposes.

 

[moXJO]

No more additional taxes thanks