In 2000, former Treasurer, Peter Costello made the fateful decision to allow the conversion of franking credits into cash refunds for shareholders. This enabled tax-free (mostly wealthy) retirees to claim imputation credits even if they pay no tax. The Australia Institute explains:
Some of the wealthiest people in Australia pay negative tax. Whereas an Australian on a salary of $60,000 per year would pay income tax of $11,617, someone who inherited $1.2m worth of shares and received $60,000 per year in “fully franked dividends” would pay negative tax of $5,126 – they’d get money from the government. Work for a living and your take-home pay is $48,383 out of $60,000 before tax, but earn a passive income from franked dividends and your take-home pay is $65,126 out of $60,000 before tax…
