Is Labor’s franking credit reform unfair?

Fact check from the ABC:

The claim

For months the Morrison Government has argued Labor’s controversial plan to raise more than $5 billion a year by scrapping refundable franking credits on dividends from shares is “not fair”.

In a speech to the Alliance for a Fairer Retirement System, Assistant Treasurer Stuart Robert said the plan would hit some of the lowest paid Australians.

“How is that fair on the lowest paid, those with low fixed incomes, those who are retired?” he said.

“It is not fair.

“Any changes will overwhelmingly hit low and middle-income earners, with 84 per cent of the individuals impacted on taxable incomes of less than $37,000 …”

Will the changes mostly hit low and middle-income earners, with 84 per cent on taxable incomes of less than $37,000? RMIT ABC Fact Check investigates.

The verdict

Mr Robert’s claim is misleading.

He suggests Australia’s least well off will bear the brunt of the pain.

To make his case, Mr Robert relies on the taxable income of people claiming excess franking credits as a cash refund. This is problematic for a number of reasons.

First, taxable income does not include the largest source of income for many retirees: superannuation.

Superannuation income (for fund balances of up to $1.6 million) is generally not subject to tax in the retirement phase, and is therefore excluded from taxable income.

Second, in a related sense, taxable income often has little to do with wealth.

For example, the Grattan Institute has estimated that, when superannuation withdrawals are pared out of income data for retirees, almost half of the “wealthiest” 10 per cent of people over 65 report incomes of less than the $18,200 tax-free threshold.

Third, Labor’s policy applies to both individuals and superannuation funds. By focusing on individuals, Mr Robert is ignoring the impact that would flow through to members of superannuation funds, particularly self-managed superannuation funds, which account for almost half the refunds claimed.

Figures from the Parliamentary Budget Office show that almost a quarter of all refunds claimed in 2014-15 went to 33,761 self-managed superannuation funds with balances of over $2.4 million.

This is not to say the policy will have no impact on some individuals with modest incomes and wealth.

What is clear, however, is using the taxable income of individuals tells us little about the overall financial position of those affected, or about the fairness or otherwise of Labor’s policy.

What is dividend imputation?

The dividend imputation system was introduced by the Hawke government in 1987.

The logic was that the profits of Australian companies should not be taxed twice: first at the corporate level; and second at the shareholder level, after distributing profits as dividends.

Hence, “imputed” credits were attached to dividends, equivalent to the amount of company tax already paid on those dividends.

These creditsknown interchangeably as imputation credits or franking credits, could be used to offset an individual’s tax bill.

The catch under the original system was that once an individual’s entire tax liability had been offset, any excess credits could not be claimed as a cash tax refund, and were effectively worthless.

In 2001, following the 1999 “Ralph Review” of business taxation, the Howard government changed the law to allow individuals and superannuation funds to claim “excess” imputation credits as cash refunds.

Under those changes, which apply today, if an individual or superannuation fund has imputation credits exceeding their tax liabilities, they are entitled to a cheque from the Government handing back the difference.

If an individual pays no tax (with a taxable income below the $18,200 tax-free threshold) they are entitled to a refund for all of their imputation credits.

According to Treasury documents released under freedom of information laws, in 2014-15 the value of franking credits refunded was $5.9 billion.

The largest portion, $2.6 billion, went to self-managed superannuation funds, followed by $2.3 billion to individuals, $700 million to tax exempt entities and $300 million to regulated superannuation funds.

In his claim, Mr Robert referred only to refunds claimed by individuals.

Background to the claim

The Coalition Government has repeatedly suggested the proposed changes are unfair for people on lower incomes.

For example, Treasurer Josh Frydenberg told Parliament on November 26, 2018:

“On average, if you’ve got a self-managed super fund, you’ll be $12,000 worse off under Labor’s policy. If you’re an individual with these franking credits, you’ll be $2,200 a year worse off as result of Labor’s policy. What’s more, 84 per cent of those people who are currently getting the benefit of those franked dividends have a taxable income under $37,000—under $37,000!”

In a January 21 press release, he said despite Labor claims the policy would tax the rich “nothing could be further from the truth with about 84 per cent of those affected having a taxable income of less than $37,000, and 96 per cent of those affected having a taxable income of less than $87,000”

Prime Minister Scott Morrison (when treasurer) said the policy was a “cruel tax to hit retirees with small nest eggs”.

“These aren’t millionaires and multinationals,” Mr Morrison said in a press release.

“They are grandads and grandmothers simply seeking to support their own retirements. They are in Labor’s firing line while those with more means dodge the tax hit.”

Labor, on the other hand, argues the system of refundable imputation credits is an anomaly in the Australian tax system (and internationally) as most tax credits are non-refundable.

For example, the Low Income Tax Offset or the Seniors and Pensioners Tax Offset can be used to reduce tax liabilities, but they cannot be claimed as refunds if those tax liabilities are fully offset.

According a Labor policy paper, the “vast majority” of working Australians don’t receive cash refunds for excess imputation credits.

“Recipients of cash refunds are typically wealthier retirees who aren’t PAYG (Pay As You Go) tax payers. These are people who typically own their own home and also have other tax-free superannuation assets,”

The cost to the budget of the refund system for imputation credits is substantial. When the change allowing cash refunds was introduced, it cost the budget about $550 million a year, compared to about $5.9 billion a year in 2014-15, according to Treasury figures.

Labor’s plan

Labor is promising to reverse the Howard government decision to introduce cash refunds for excess imputation credits for individuals and superannuation funds.

Labor’s original policy, announced on March 13, 2018, would have applied to all individuals and superannuation funds claiming excess credits.

Two weeks later, on March 27, after warnings the policy would hurt some low and medium income pensioners receiving income from imputation credits, Labor announced what it called the “pensioner guarantee”.

Under this change, according to estimates by the Parliamentary Budget Office, some 320,000 pensioners and allowance recipients would continue to be able to claim cash refunds for excess imputation credits.

Opposition Leader Bill Shorten also promised self-managed superannuation funds with at least one pensioner or allowance recipient before March 28, 2018 would be exempt.

The PBO estimated this iteration of the policy would improve the budget position by $10.7 billion over the four-year budget period — about $700 million less than its original announcement.

Almost two-thirds of this revenue, or $6.9 billion, would come from superannuation funds, with the remainder ($3.8 billion) collected from individuals.

Tax-free retirement

After overhauling the dividend imputation system in 2001, the Howard government introduced other changes benefiting superannuated retirees.

Specifically, in 2006 it announced superannuation income streams would be tax free for individuals aged over 60 from July 1 2007.

As superannuation fund Sunsuper explains to its members, in addition to this measure, the investment earnings a superannuation fund earns for any person receiving an income stream from their superannuation savings are also now tax free.

Under the current rules, individuals can transfer up to $1.6 million into a tax-free, retirement phase superannuation account.

In the pre-retirement phase, superannuation funds generally pay 15 per cent tax on earnings.

This also allows them to benefit from franking credit refunds, as the current corporate tax rate on which the franking credit is based is 30 per cent.

Testing the claim

Mr Robert’s assertion is difficult to precisely assess independently, at least on publicly available data.

ATO statistics based on information contained in individuals’ tax returns do not capture all franking credit refunds.

As the ATO says on its website, individuals who are not required to lodge a tax return can still claim a refund.

And according to Treasury, there are “difficulties” in using tax data to estimate the number of people holding retirement phase accounts with self-managed superannuation funds who receive franking credit refunds.

The Grattan Institute’s Brendan Coates and Danielle Wood have pointed out the fragmented nature of the data on what retirees earn, what they own and what tax they pay.

Fact check: Do two-thirds of negative gearers have a taxable income under $80,000?

Treasurer Josh Frydenberg says that two-thirds of people who use negative gearing have a taxable income of under $80,000 a year.

“Personal income tax returns provide only a patchy picture of the earnings and wealth of retirees,” they wrote.

“Superannuation payouts have been tax-free since 2006: they don’t even have to be declared on personal income tax returns. And draw-downs of savings other than superannuation to fund retirement — whether shares, bank deposits or investment property — are not declared as income.”

The Australian Bureau of Statistics conducts a survey of share ownership and other assets for retirees.

But the survey does not include information on imputation credits received, nor tax paid.

Fact Check contacted the ATO and Federal Treasury requesting detailed data needed to assess the claim.

Two sources of data are available. First, documents marked “protected” prepared by Federal Treasury but released under freedom of information laws provide an analysis of the impact of Labor’s plan, including by taxable income.

Second, the Parliamentary Budget Office has released two sets of analyses, the first requested by Liberal Democratic Party senator David Leyonhjelm, and completed in May 2018, the second requested by Labor MP Matt Thistlethwaite, and completed in November 2018.

The second of these analyses was released after Mr Robert made his claim.

Who bears the burden?

Federal Treasury undertook an analysis of 2014-15 taxation data to estimate the number of individuals claiming excess franking credits in various tax brackets.

As can be seen, according to Treasury’s analysis, 86 per cent of the individuals who received refunds had taxable incomes of $37,000 or less.

It is to some extent self-evident that the policy will mostly affect individuals on incomes below $37,000, because $37,000 is the threshold for the 32.5 per cent tax rate, higher than the corporate tax rate of 30 per cent that determines the franking credit.

As Treasury put it: “Providing refundability of franking credits allows taxpayers with a marginal tax rate below the company tax rate to receive a refund of tax paid by the company.”

Treasury also notes that individuals in the top two tax brackets receive “a small amount” of overall refunds, because of their high marginal tax rates.

“Refunds in these brackets would be limited to individuals with only a small proportion of income from other sources or a significant amount of tax losses/non-refundable tax offsets available,” it said.

Modelling by the Parliamentary Budget Office roughly concurs with Treasury’s assessment. It analysed 2014-15 tax data by income decile, finding that 87 per cent of those affected have a taxable income below $35,000.


What about the impact of Labor’s “pensioner guarantee”?

According to the Parliamentary Budget Offices estimates, there are some 320,000 pensioners and allowance recipients who claim refunds for excess imputation credits.

Those estimates show the guarantee would reduce revenue by $300 million in 2021-22, or just 5 per cent.

The relatively small loss of revenue due to the guarantee in itself suggests most of the revenue from the policy is not coming from full or part pensioners, but wealthier retirees.

According to experts consulted by Fact Check, the bulk of pensioners and allowance recipients would have taxable incomes below $37,000, although a handful of part pensioners might have taxable incomes above $37,000 and dividend imputation credits exceeding their tax liabilities.

For the sake of analysis, Fact Check assumed that 95 per cent of the 320,000 pensioners claiming cash refunds had taxable incomes below $37,000, finding some 83 per cent of individuals affected by Labor’s policy have taxable incomes below $37,000, after making allowances for Labor’s Pensioner Guarantee.

Taxable income?

As previously noted, “taxable income” does not include the largest source of income for many retires: tax-free superannuation.

Nor does it tell us much about the overall wealth of those claiming refundable franking credits.

The Grattan Institute’s Ms Wood said analysing the changes by focusing on taxable income did little to explain the economic position of those affected by the policy change.

In a recent submission to a House of Representatives Inquiry, the Grattan Institute gave the following example.

“Take the example of a self-funded retiree couple with a $3.2 million super balance, plus their own home, and $200,000 in Australian shares held outside super. Even drawing $130,000 a year in superannuation income, and $15,000 a year in dividend income, they would report a combined taxable income of just $15,000 and pay no income tax whatsoever.”

Calculations by the Grattan Institute show when superannuation income is removed from ABS income and wealth survey data (reflecting taxable income), almost half of the wealthiest 10 per cent of those over 65 report income of less than the $18,200 tax free threshold and thus pay no tax.

On average, however, this group had wealth of nearly $2 million, even before factoring in the value of their home or other property assets.

This illustrates the extent to which individuals with relatively high levels of untaxed incomes (including from superannuation) and wealth have low taxable incomes.

Economic modelling on retirement savers by a group of academics from the College of Business and Economics at the Australian National University, including Associate Professor Adam Butt, Dr Gaurav Khemka and Associate Professor Geoff Warren, found the impact of Labor’s policy would be “greatest for wealthier retirees”.

“Our analysis … confirms that the impact of the proposed Labor policy will be greatest for retirees on larger balances, with significant effects occurring at initial balances at age 65 ranging from $800,000 up to the $1.6 million limit on tax-free retirement accounts,” the academics said in a submission (no. 158) to a parliamentary inquiry.

Another way to view the issue is to look at share ownership by wealth.

The Parliamentary Budget Office estimated the bottom 50 per cent of households by net wealth own just 3.2 per cent of the total value of Australia’s shares, with 72 per cent of the value of all shares held by the top 10 per cent.

What about superannuation funds?

Treasury has found that 90 per cent of the refunds accruing to superannuation are claimed by self-managed superannuation funds.

The Parliamentary Budget Office analysed the impact of the policy on this sector, finding that in 2014-15, 201,439 self-managed superannuation funds claimed almost $2.6 billion worth of excess franking credits.

The bottom half by fund balance claimed just 6.4 per cent of the total value, compared to more than half claimed by the top 10 per cent of funds with balances of more than $2.4 million.

When considered as a proportion of the total refunds claimed in 2014-15 by superannuation funds, individuals and tax-exempt entities combined, the 33,761 self-managed superannuation funds with balances of more than $2.4 million accounted for almost a quarter of all refunds.

Treasury analysed the refunds to self-managed superannuation funds by the balance per member, rather than by the total fund balance.

It found that “more than two-thirds of refunds to SMSFs are to those whose fund balance per member is greater than $1 million”.

What the experts say

Melbourne University tax law expert Professor Miranda Stewart said the use of taxable income to assess the impact of Labor’s dividend imputation policy “does not tell us very much”.

“In fact it is precisely because taxable income is low that a refund is achieved,” Professor Stewart said.

Ms Wood, from the Grattan Institute, said most of the people affected were self-funded retirees.

“And the reason they are affected is because they get refunds and the reason they get refunds is because they have low taxable incomes,” Ms Wood said.

“The reason they have low taxable incomes is because the income generated by self-managed super funds up to balances of $1.6 million is tax free. So their taxable income could be low but their actual income is often reasonably healthy, but they are still getting access to imputation credits.

Kathrin Bain, from the School of Taxation and Business Law at UNSW Sydney, said as a general rule most of those affected by Labor’s policy had marginal tax rates less than the company tax rate.

“To be affected by this policy you have to have a marginal tax rate that is lower than the company tax rate,” Ms Bain said.

“If you are just looking at individuals, of course it is going to affect people with lower taxable income.”

“In terms of whether it is fair, that goes into a theoretical debate about what the imputation system is meant to do. Some people would argue of course you should get a refund because the whole idea of our current imputation system is that dividends are effectively taxed at the individual’s marginal rate. On the other hand, others argue that our original imputation system shouldn’t have been changed to give a refundable tax offset. The argument there is that even if no refund is available, the dividend still has not been taxed at a rate higher that the company rate.”

Ms Bain said the current system of refundable imputation credits benefits superannuation funds that have a tax rate of 15 per cent and will often receive large tax refunds as a result of the imputation system.

Nice work. In short, it is another boomer tax rort.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. The removal of lurks is a painful thing. Won’t somebody please think of the poor old boomers and their carefully laid plans? 😯

    • Strange Economics of statistics of fact checking

      Surely the one thing learnt from Trumpism is that Fact Checking doesn;’t matter at all if you have tapped into a popular fear. Just keep repeating.
      Trump has been fact checked over 300 times according to NY Times…

    • Poor pensioner boomers drawing a state pension while sitting on million dollar properties. The pension should be means tested against their housing assets.

      A boomer retiring today at 65 will get around $850,000 in pension payouts before death, and cost medicare around $160,000. We should put in a form of reverse HECS scheme or estate tax so this money can be recovered from the sale of the million dollar property after death.

      • Many of us here have been calling for that sort of scheme for ages.

        You know it makes sense when both the Centre for Indendent Studies AND the Grattan Institute are also advocating for it.

      • Just looking at the boomers i know, i reckon that medicare number is way way to low – they are consuming medical services at an eye watering rate.

      • It’s funny how youse are confusing ideological class warfare as expressed in the iniquitous tax system (among others) with ‘generational’ warfare supposedly waged by baby boomers (mostly your parents, Oedipus complex anyone?).

      • The argument there is that even if no refund is available, the dividend still has not been taxed at a rate higher that the company rate (30% usually).

        So the objective is to abolish the tax-free threshold for a particular type of income and replace it with a minimum average tax rate of 30%.

        30% average tax rate on personal income is an extremely high average tax rate and doesn’t occur for most types of income until the individual receives nearly $180,000 per annum.

        So much for the principle of progressive taxation. Rest In Peace.

    • I’m a boomer who will reach the retirement age of 67 in May 2024. My husband will reach retirement age in August 2026. I believe any boomer who has the capacity to continue to work, even part-time, should do so rather than claim the pension. To suggest any current generations should be entitled to 20+ years of pension payments is completely ludicrous and unsustainable with the longer lifespans we have now. In reference to this article – any system bought in by whatever government that give tax benefits to a section of individuals at the expense of other taxpayers to fund their own retirement would seem rather wrong, in my opinion. I don’t know enough about the whole issue but I know other countries are pulling out of these schemes and not implementing them at all. So, on that premise I would have to say it’s time to go back to the old system.

  2. I really am getting sick of the LNP peddling propaganda-grade crap about economic matters…

    I don’t disagree with them on everything, but they have become extremely annoying over recent years…

    • That’s what happens when you adopt an antiscience climate and energy policy — purely to benefit vested interests. The corruption that that entails eventually poisons the whole party. That’s why they have become hollow men who simply parrot propaganda and false premises, and also why many of them are retiring to “spend more time with their families” 🙄


      Just a shambles. Fallen apart as an organisation. Relentlessly negative because they’ve got no policy platform of their own, and in no way capable of formulating one: too any religious nuts, no respect for reason or evidence-based discourse. Get em gone.

  3. TailorTrashMEMBER

    Like the picture ………..Dammit how many times do I have to say it ?……no fcuking ice in my gin and tonic !

    ……and if in pension phase with anything up to 1.6 mill in a fund that pays no tax perhaps we could let this little subsidy go to provide more to those with nothing ..
    This is more good corrective policy from quiet Bill …….no objections from me

  4. A million times over I have said this to people I know and still Most refuse to see the bigger picture with this issue. It’s not a problem with dividend tax credits refunds, its a problem with retirees paying 0% on their income. by removing the excess imputation credit cheques you are diminishing the progresive nature of the tax system for the lowest earners and having no impact on people with high incomes at all. It’s a broken tax system for retirees, not a broken tax system for dividend imputation. Fixing the problem at the source (0% retiree income tax) is the correct thing to do but, oh no, that would be too politically difficult, so once again, [email protected]$& over the younger generation by giving the oldies a freebie and letting us young savers/investors on a low income cop it.

    • ErmingtonPlumbingMEMBER

      Yes this,…In my view ALL income should be taxed on exactly the same progressive scale.

      IF Retirees must be given an extra tax free earnings threashold it should only be on earnings up to the equivalent of the amount the pension is, with the norman progressive tax scale to kick in after that.

      These super balances were already tax free on the way in, tax free on their earnings when kept in super accounts, so why must they be tax free when taken out?

      Why should I pay a Sh!t load of tax on 160k per year, when digging holes, risking Hepatitis, falls from rooftops, breathing in molds and asbestos under houses etc etc providing an essential service, When some old Cnt can “Earn” exactly the same amount of money, Tax free !!! for doing FK ALL !!!!
      Providing a service to no one and making Zero contribution to society.
      FKing rorting Cnts!

      • “These super balances were already tax free on the way in, tax free on their earnings when kept in super accounts”

        No there is a 15% tax on all taxable income received by super funds which includes both contributions and investment earnings.

        “so why must they be tax free when taken out?”

        They were not tax-free before 2007 when the Howard government (with Labor Party approval) decided that superannuation pensions would be tax free.

        So the Labor Party had no great problem with tax-free super pensions all through the Rudd-Gillard governments until suddenly last year they launched a massive whinge campaign about tax-free super pensions and how the appropriate way to respond to their sudden revelation was to make tax that shareholders are imputed to pay non-refundable.

        If they really cared about super pensions being tax-free then they would never have agreed to that in the first place and would have used the earliest opportunity when in government to reverse the tax removal made in 2007. Utterly shameless hypocrites.

      • @ErmingtonPlumbing
        I applaud the fact you work for living, and appear to earn much higher than the ‘average wage’. However, perhaps a more polite and educated debate is what’s needed. Most of my parent’s and grandparent’s generations did indeed ‘work hard for a living’, paid their taxes, and despite this will end up living a life far from the supposed excesses you imply. Look into the reasons superannuation, saving for retirement, and investing for the future are a good idea. Oh and in relation to your various insults, can I suggest a visit to any volunteer organisation across Australia, or an aged care facility. Me, I’m not a boomer, I’m Gen X, work hard and have respect for people of all ages who contribute in any way. I’m positive no ‘tradie’ has ever ‘rorted the system’ or avoided tax…puhlease!

    • Ralph
      What good sense!
      The business of not allowing tax refunds is another distortion aimed at fixing other distortions. If there is a problem then fix the basic issues.

  5. The Boomers have it all sown up — along with $800bn+ in State and Federal debt, most of which has flowed (directly and indirectly) into their working incomes ….. and as Govt debt is nothing less than ‘deferred taxation’ they’ll escape paying any of the bill in their lifetimes.

    It’s good to be king!

    • The áge’ warfare is a false construction. It should be about productive and non-productive; real estate vs actually manufacturing something; producing something rather than all consuming; over-paid bludging versus working in a struggling constructive business for sfa; corporate subsidisation with negative RAT rates vs conserving resources with positive RAT interest rates. etc etc etc
      (Not aimed at Dominic ) Too often here it’s just blame boomers while continuing to espouse the very policies that produced boomers. Too many want the same thing except for the benefits of the systemic corruption to flow to themselves.

      • It’s alright flawse. Just a cheap shot. Certainly many boomers will feel they’ve not benefitted at all but many have without noticing it and the ‘inheritees’ will certainly have. It’s a sh!t-show and the economy is headed for a brick wall with ‘dirt’ as the padding. Nail bars, hair-dressers, massage parlours, pawn-brokers, betting shops, coffee shops, bottle shops, news agents, real estate agents etc — it’s a sea of service related businesses servicing ‘what’ exactly?

        And we have the debt to repay — what did that pay for?

  6. In my view, it does not matter how well a case can be made for changing the franking credit scheme,
    the Liberal NewsCorp National Coalition (LNNC) will speak the loudest, to the most voters, in the most effective way
    to make this a political liability.
    This policy will die, as surely as the Resources Tax of a few years ago.
    I suspect Labor have done the polling in the big end of town electorates where the most pain will be felt
    and obtained the surprising answer: “Climate change is the most important issue that comes to mind. Thanks for asking.”
    We are in for another demonstration of how sick our polity really is.

    • It’s a good point. Labor took a moral position on pokies to the electorate in Tassie and were wiped out by big dollars from the gambling business, although it will be harder to appeal to the average joe that doesn’t have a 500K share portfolio than it was to convince bogans gambling is freedom.

    • I don’t think that they’ll be able to get the same traction as Minerals Council of Australia did against Rudd. There is no option for hi-vis. How can you say this is taking jobs away from Australians? A lot of people that fell for the MCA line are feeling the pinch and will have very little sympathy for those that aren’t paying tax and yet receiving a refund. Added to this that personal tax is something that, while still a great mystery to most, can be associated with. It fails the pub test on many levels. I also think that Labor is a lot more switched on and organised this time with the bonus of not having Mr. Rudd in their corner and the undisputed heavy-weight champion wrecker of the world, Mr. Abbott, in the other. Finally, the LNP is on the nose so News Corp don’t have as sentimental leverage as in the past.

      It’ll still be a fight but I’d put the odds in Labour’s favour.

      • The Minerals Council of Australia didn’t get any traction against Rudd. He was knocked out by the Labor Party. They hobbled Gillard and Swann and the Resources Tax was finally knocked out by Abbott.

        But he MCA has a lot more money to spend on TV and other campaigns than the lesser wealthy self-funded retirees.

  7. Miranda Stewart and Danielle Wood should know better – the refunds are not because taxable income is low (franking credits themselves are taxable income), they are refunded because the tax rate for the shareholder is low.

    So any change should be aimed at fixing that anomaly for retirees – not making arbitrary rules around getting a franking refund depending on the investment vehicle you use. Instead the ALP want to fix and anomaly by introducing another one.

    If SMSFs in retirement phase switch to investing in corporate debt rather than equity, nothing will be saved. The SMSFs will still not pay tax on that income while the company will get a tax deduction for that payment (obviously there is no deduction for dividends). Meanwhile, and franking credits will flow to those investors who can actually use them like industry funds and retail funds.

    In reality, what is likely to happen is that the big funds will increase their equities portfolios and then swap out part of their equity exposure to other funds who cant use the franking. The big fund will keep all the franking and can share the benefit of it with the smaller fund by way of fee reductions.

    It really is poor policy but apparently as soon as you mention the word “fairness” and mention schools and hospitals it absolves you of having to use your brain.

    • Not necessarily, the aim is to tax corporate profits at a fixed rate, the franking credits merely avoid double taxation. There is no reason why corporate tax should be refunded, especially when the data shows most of the refunds are just going to tax effective structures not to people of low wealth.

      • If you want to tax corporate profits at a fixed rate then dividends should be exempt. Imputation is a different system – if your personal rate is higher than the corporate rate, you need to top up. Conversely, if it is less you get a credit.

      • Well that’s one way to avoid double taxation sure, but it’s just not how things evolved in Australian tax law. The intention was to ensure that there was no double taxation on the income from the corporate. It’s true that politics turned it into a bit of a half way house where the corporate tax intermingled with the personal rates (this doesn’t undermine the progressive tax system), but that still does not create a case for a refunds.

      • “the aim is to tax corporate profits at a fixed rate”

        Completely false.

        Corporate profits are generally taxed at the tax rate of the shareholder, even under a non-refundable condition as long as the shareholder can use the imputed tax credits to pay tax on any part of their income. For example, if a super fund gets half its taxable income from franked dividends and half its taxable income from rent and interest then the corporate profit component of its income will only end up being taxed at 15%

    • Exactly Jason.

      All Labor really needed to propose was something which would address the differing tax rates across different groups. That could have been as simple as adjusting the tax free threshold and/or introducing a modest, but across the board rate of tax to be paid in retirement earnings.

      Instead we get another nonsense tax policy change which increases complexity and is unlikely to achieve the stated aim. But because so few people have their heads around the current dividend imputation arrangements, they can’t comprehend that this is just Labor kowtowing to their Industry Super masters.

      And of course being poorly understood makes it easy to play as another “stick it to the rich old dude” measure, even though it will have a much greater negative impact on genuine low income taxpayers.

      Bowen is either dense, a knowing liar, or perhaps a combination of both.

    • “If SMSFs in retirement phase switch to investing in corporate debt rather than equity, nothing will be saved.”

      The other choice is for SMSFs to shut down and move their equity investing to big funds in which case the Labor government will also gain nothing.

      If the Labor Party was honest then it would also ban the trading of franking credits for contributions tax attributable to different members within the one fund and thus collect far more additional tax.

      But Shorten and Bowen have gone down the path of dishonesty with their “pays no tax” mantra so we can hardly expect them to be honest anywhere else.

  8. This is not to say the policy will have no impact on some a lot of individuals with modest incomes and wealth.

    Such individuals are insignificant and can be rubbed into the dirt and forgotten about.

    To consider them would require respecting the income tax principle of vertical equity, a term which exceeds the attention span of most people.

    The Labor Party can go all self-righteous about vertical equity in its National Platform but that doesn’t matter because hardly anyone knows what “vertical equity” means anyway.