Author Topic: Shorten and franking credits  (Read 2661 times)

mjr

  • Stubble
  • **
  • Posts: 217
  • Age: 52
  • Location: Brisbane, Qld
  • Retired at 52
Shorten and franking credits
« on: March 12, 2018, 02:17:30 PM »
So, Shorten and Bowen now have a policy to remove refunds from the ATO when franking credits exceed tax payable.  Apparently they don't mind if you pay much more tax than you're required to.

If this comes off, watch for the wholesale restructuring of asset bases from income producing to capital growth.  ASX listed companies will no doubt respond by cutting dividends.

Every SMSF in pension phase will be affected dramatically.

The hide of politicians knows no bounds.

marty998

  • Walrus Stache
  • *******
  • Posts: 5765
  • Location: Sydney, Oz
Re: Shorten and franking credits
« Reply #1 on: March 12, 2018, 02:30:49 PM »
Hmm... I actually don't have a major objection to this. The policy ensures a minimum amount of tax is paid on corporate earnings, rather than the present scenario where SMSFs get their 5% dividend yield and pillage the budget too. If coupled with a cut in the corporate tax rate to 20% then I would support this.

If ASX companies decide to cut dividends and reinvest in their businesses (like a good business should) then you might see some improvements to the level of economic growth too.

Happy to see that one party is prepared to have a discussion on the issue, so at least the policy has time to bake and be refined. What we presently have is a government that doesn't have a tax policy.


Every SMSF in pension phase will be affected dramatically.

Perhaps SMSFs should not be so over exposed to ASX shares in the first place?
« Last Edit: March 14, 2018, 05:01:30 AM by marty998 »

mjr

  • Stubble
  • **
  • Posts: 217
  • Age: 52
  • Location: Brisbane, Qld
  • Retired at 52
Re: Shorten and franking credits
« Reply #2 on: March 12, 2018, 02:59:40 PM »
If coupled with a cut in the corporate tax rate to 20% then I would support this.

Ha.  The ALP has proposed this purely as a counter to the Coalition's pushing to lower the corporate tax rate.  No way the ALP will do this.


Perhaps SMSFs should not be so over exposed to ASX shares in the first place?

You don't need to be over-exposed to incur an effective tax penalty of many thousands of dollars.

potm

  • Pencil Stache
  • ****
  • Posts: 549
Re: Shorten and franking credits
« Reply #3 on: March 12, 2018, 03:48:03 PM »
Wow this is massive. Honestly I think Labour have just lost the election.
What is presented as a tax grab on the rich actually has a massive impact on the not so wealthy.
Sure the rich benefit from it in Super but that was already reduced with the super changes.

Outside of Super this is a massive hit for retirees with pretty modest savings. Even more reason to not bother saving and just rely on the age pension. A lot of people would have planned their retirements based on franking credits. This includes a lot of FIRE people.

If this goes through as reported, I will be changing up my portfolio to include more foreign shares.
The average mum and dad investor who holds bank shares and telstra etc, using the dividends to live off wonít be able to adapt as easily.

https://www.theage.com.au/politics/federal/shorten-hits-shareholders-with-plan-for-59-billion-revenue-grab-20180312-p4z40d.html

Read the comments there, majority negative. I expect the same reaction here as we get more comments.

BattlaP

  • Stubble
  • **
  • Posts: 171
Re: Shorten and franking credits
« Reply #4 on: March 12, 2018, 04:59:56 PM »
Yeah this is supposedly targeted at the 'rich' but actually hits hardest those who have saved enough to live a modest retirement underneath the tax-free threshold. I've been a big fan of labors financial policies in the last few years but this is a really dumb and disingenuous stance to take. Without the appealing benefit of franking credits my investment money will move overseas.

They only ever got my preferences but now I'll probably make sure they don't even get those.

potm

  • Pencil Stache
  • ****
  • Posts: 549
Re: Shorten and franking credits
« Reply #5 on: March 12, 2018, 05:34:08 PM »
Unless my understanding of this policy is wrong, it will effect every single person's super. The media reports so far only mention a small percentage being effected.

It is actually a regressive tax policy change, removing tax benefits on the low income. It is just that super distorts this.
The coalition's super changes were much more effective at targeting the rich.

deborah

  • Walrus Stache
  • *******
  • Posts: 7667
  • Location: At Home
Re: Shorten and franking credits
« Reply #6 on: March 13, 2018, 11:17:36 AM »
The fact that Labor themselves say it will affect 400,000 part pensioners and 14,000 full pensioners means that they should have figured out the impact! My aged parents say that it doesnít really make a difference to them, but it will - itís about 20% of their income. They are too poor to pay tax, and are too old to have any superannuation.

Since Australia is one of the few countries that have franking credits, I canít see how overseas shares will give that advantage.

If it only affected superannuation in pension phase, I would be happy - it would be a way of removing the tax free nature of superannuation pay-outs without actually doing it, and thus not grandfathering the change.

mjr

  • Stubble
  • **
  • Posts: 217
  • Age: 52
  • Location: Brisbane, Qld
  • Retired at 52
Re: Shorten and franking credits
« Reply #7 on: March 13, 2018, 01:16:32 PM »

Since Australia is one of the few countries that have franking credits, I canít see how overseas shares will give that advantage.


There's plenty of discussions as to the reasons why Australians shouldn't (over-)invest in Australian shares - over-concentration in banking and mining, very small fraction of the global economy, etc.  Franking credits offset these considerably.  Take the franking credits refundability away and money will move to overseas shares.


it would be a way of removing the tax free nature of superannuation pay-outs without actually doing it, and thus not grandfathering the change


That would be yet another half-arsed, unfair distortion and disruption.  People who own ASX dividend paying shares pay tax in super but no one else does.  Taking away super's tax-free nature would require root-and-branch reform.
« Last Edit: March 13, 2018, 01:54:40 PM by mjr »

limeandpepper

  • Magnum Stache
  • ******
  • Posts: 4470
  • Location: Australasia
Re: Shorten and franking credits
« Reply #8 on: March 14, 2018, 08:35:48 AM »
LOL is he for real?

http://www.afr.com/real-estate/bill-shorten-urges-investors-to-offset-imputation-credit-losses-with-property-20180314-h0xge5

As if property in Australia isn't expensive enough he suggests that investors can move from investing in shares to investing in property to offset potential losses. Frankly (pun intended) I'd rather invest in a diverse range of businesses that are productive in a variety of ways... but hey, let's all concentrate on property instead (as if Australia isn't already property-obsessed enough) and make them more unaffordable!

Little Aussie Battler

  • Stubble
  • **
  • Posts: 152
Re: Shorten and franking credits
« Reply #9 on: March 14, 2018, 05:46:30 PM »
https://www.smh.com.au/money/super-and-retirement/labor-voter-fury-over-losing-30pc-of-income-under-shorten-plan-20180314-p4z4b1.html

I felt slightly sympathetic until I saw the photo of their view... in Rozelle.

Move - even if it's just a few streets back from the water - and you won't have to worry about money!

marty998

  • Walrus Stache
  • *******
  • Posts: 5765
  • Location: Sydney, Oz
Re: Shorten and franking credits
« Reply #10 on: March 15, 2018, 02:09:46 AM »
https://www.smh.com.au/money/super-and-retirement/labor-voter-fury-over-losing-30pc-of-income-under-shorten-plan-20180314-p4z4b1.html

I felt slightly sympathetic until I saw the photo of their view... in Rozelle.

Move - even if it's just a few streets back from the water - and you won't have to worry about money!

Yeah that place will go for over a million easy. Even if she didn't sell, she could reverse mortgage and derive the same level of income.

There are always other options available.

itchyfeet

  • Pencil Stache
  • ****
  • Posts: 632
Re: Shorten and franking credits
« Reply #11 on: March 15, 2018, 02:52:52 AM »
I think $1 million for that apartment is a big understatement. The poor retiree is sitting pretty.

It will be interesting to follow the development of this policy. Shorten has clearly made a misstep and will need to rethink how to get wealthy retirees to pay some taxes. I thought the $1.6m super cap already did a pretty good job of this.

deborah

  • Walrus Stache
  • *******
  • Posts: 7667
  • Location: At Home
Re: Shorten and franking credits
« Reply #12 on: March 15, 2018, 05:53:18 AM »
It will be interesting to follow the development of this policy. Shorten has clearly made a misstep and will need to rethink how to get wealthy retirees to pay some taxes.
Particularly as the Batman election is so close - anyone would think he had a death wish!

Eucalyptus

  • Bristles
  • ***
  • Posts: 327
  • Location: South Australia
Re: Shorten and franking credits
« Reply #13 on: March 15, 2018, 06:33:54 AM »
Yeah this has definitely been a poorly thought out idea. So many other things they could have gone for, that would be demonstrably "fairer" without targeting those at the lower end.


They have been much smarter in the past with their ideas about reforming negative gearing on future investment properties. So have the Greens.


If they think the 1.6m Super limit isn't hampering the elite retired rich enough, they could up the taxes on non-super investments for those people. Eg, add in bigger brackets past the current ones on non-super income, if you are retired or have maxed out super. Cut out negative gearing more aggressively also. I dunno. Many other things to try. Not hard to come up with them.

Llewellyn2006

  • 5 O'Clock Shadow
  • *
  • Posts: 92
  • Location: Australia
Re: Shorten and franking credits
« Reply #14 on: March 15, 2018, 07:25:49 AM »
Hmm... I actually don't have a major objection to this. The policy ensures a minimum amount of tax is paid on corporate earnings, rather than the present scenario where SMSFs get their 5% dividend yield and pillage the budget too. If coupled with a cut in the corporate tax rate to 20% then I would support this.

If ASX companies decide to cut dividends and reinvest in their businesses (like a good business should) then you might see some improvements to the level of economic growth too.

Happy to see that one party is prepared to have a discussion on the issue, so at least the policy has time to bake and be refined. What we presently have is a government that doesn't have a tax policy.


Every SMSF in pension phase will be affected dramatically.

Perhaps SMSFs should not be so over exposed to ASX shares in the first place?

I agree with every word of this.If nothing else, at least Labor are coming up with some idea's that may or may not eventually be implemented. Turnbull is still too shit-scared of Abbott to come up with any sort of policy about anything.

itchyfeet

  • Pencil Stache
  • ****
  • Posts: 632
Re: Shorten and franking credits
« Reply #15 on: March 15, 2018, 08:57:43 AM »
Sorry, I disagree

Say I own a small company that pays 30% tax on profits. My only source of income are dividends distributed from my company. For me, like all other taxpayers in Australiaís progressive tax system, I should be entitled to benefit from the tax free threshold and the low end of marginal tax rates. The proposed scheme means that the minimum marginal tax rate on my income is 30%. I pay 30% income tax from zero income upwards. This is unfair and not equitable.

The problem is not with the dividend imputation scheme, but with the fact that superannuation returns are not taxed. Limiting the amount you can put int Super with concessional treatment, and limiting the amount you can earn in Super with concessional treatment is fairer if you believe in progressive taxation.
« Last Edit: March 15, 2018, 09:35:36 PM by itchyfeet »

marty998

  • Walrus Stache
  • *******
  • Posts: 5765
  • Location: Sydney, Oz
Re: Shorten and franking credits
« Reply #16 on: March 15, 2018, 02:58:32 PM »
Then run your business through a trust or in your personal name instead (if it is small).

There are other options. There are always other options (as I've said before)

itchyfeet

  • Pencil Stache
  • ****
  • Posts: 632
Re: Shorten and franking credits
« Reply #17 on: March 15, 2018, 09:32:18 PM »
Itís not a matter of seeking other options. The way I see it, the dividend imputation scheme makes sense. Itís not broken.

The problem the ALP wants to address is rich retirees not paying their fair share of taxes. This is a problem with Superannuation, not dividend imputation credits.

mjr

  • Stubble
  • **
  • Posts: 217
  • Age: 52
  • Location: Brisbane, Qld
  • Retired at 52
Re: Shorten and franking credits
« Reply #18 on: March 15, 2018, 09:52:26 PM »
Exactly

HappierAtHome

  • Walrus Stache
  • *******
  • Posts: 8998
  • Location: Australia
Re: Shorten and franking credits
« Reply #19 on: March 15, 2018, 10:29:47 PM »
Honestly I think Labour have just lost the election.

Unless they backtrack very quickly... which Shorten is prone to do.

It amazes me that no one in my workplace or social circles seems to be discussing this policy.

Llewellyn2006

  • 5 O'Clock Shadow
  • *
  • Posts: 92
  • Location: Australia
Re: Shorten and franking credits
« Reply #20 on: March 15, 2018, 11:15:49 PM »
Honestly I think Labour have just lost the election.

Unless they backtrack very quickly... which Shorten is prone to do.

It amazes me that no one in my workplace or social circles seems to be discussing this policy.

Because they're probably more interested in what happened in last nights episode of My Kitchen Rules or whatever other pieces of shit are masquerading as entertainment on the commercial networks.

Levity aside, at least they are coming up with some policies (and I doubt this one would get past the Senate even if they do get in), which is more than the other lot are doing
« Last Edit: March 15, 2018, 11:17:33 PM by Llewellyn2006 »

deborah

  • Walrus Stache
  • *******
  • Posts: 7667
  • Location: At Home
Re: Shorten and franking credits
« Reply #21 on: March 15, 2018, 11:47:27 PM »
Honestly I think Labour have just lost the election.

Unless they backtrack very quickly... which Shorten is prone to do.

It amazes me that no one in my workplace or social circles seems to be discussing this policy.
It's only people like us who will be affected. Most people don't have much in super, or shares, and their super is in Managed Funds rather than Australian shares so they're not affected.

Questions about whether this affects you, stop when you get an answer...

1. Do you have any Australian shares (either individually owned or in an SMSF - an ETF is a share)? If no, you aren't affected.
2. Do you have a taxable income of less than $37k? If no, you aren't affected.
3. Do you get back more tax than you have paid in your tax return? If no, you aren't affected. If yes, you are probably affected.

My parents are affected because they have shares and have no superannuation (they are in their 90s, and many in this age group never had any super), and their income is less than the aged pension (so they don't pay tax). But they don't get the pension at all. As they own shares individually, outside super, they would get capital gains tax if they changed to managed funds.

I am affected because I have an SMSF - if I had a fund instead (Vanguard managed fund rather than Vanguard ETFs), I wouldn't be affected. Managed funds don't have the implications because they have a lot of people in accumulation phase. It should be relatively easy to change over - I just sell the lot and transfer my super from my SMSF to a managed fund. Or, if I had some of my SMSF in accumulation phase as well as some in pension phase, I also wouldn't be affected. People with more than $1.6mill in superannuation (and thus having to keep the balance in accumulation phase) will be able to offset it (ie, all the rich people they want it to affect).

Early retirees can use managed funds rather than shares, and get the full amount. Basically, this change makes SMSFs earn a lot less when they are in pension phase.

In some ways it it a lot of hoo-ha. The policy definitely will not affect the people they want it to affect, and who knows what it's going to look like once they've figured it out.

mrmoonymartian

  • 5 O'Clock Shadow
  • *
  • Posts: 76
  • Age: 36
  • Location: Brisbane
Re: Shorten and franking credits
« Reply #22 on: March 16, 2018, 03:29:43 AM »
Shorten said pensioners would be compensated so they weren't worse off. If true, I'd support this rollback.

I could be wrong but to me that means that to be negatively affected you don't qualify for a pension. If you don't qualify for a pension you're too rich or too young. Or both.

So what is there to be a complainypants about? Life is good in any case.

Eucalyptus

  • Bristles
  • ***
  • Posts: 327
  • Location: South Australia
Re: Shorten and franking credits
« Reply #23 on: March 16, 2018, 06:35:55 PM »

Questions about whether this affects you, stop when you get an answer...

1. Do you have any Australian shares (either individually owned or in an SMSF - an ETF is a share)? If no, you aren't affected.
2. Do you have a taxable income of less than $37k? If no, you aren't affected.
3. Do you get back more tax than you have paid in your tax return? If no, you aren't affected. If yes, you are probably affected.

My parents are affected because they have shares and have no superannuation (they are in their 90s, and many in this age group never had any super), and their income is less than the aged pension (so they don't pay tax). But they don't get the pension at all. As they own shares individually, outside super, they would get capital gains tax if they changed to managed funds.

I am affected because I have an SMSF - if I had a fund instead (Vanguard managed fund rather than Vanguard ETFs), I wouldn't be affected. Managed funds don't have the implications because they have a lot of people in accumulation phase. It should be relatively easy to change over - I just sell the lot and transfer my super from my SMSF to a managed fund. Or, if I had some of my SMSF in accumulation phase as well as some in pension phase, I also wouldn't be affected. People with more than $1.6mill in superannuation (and thus having to keep the balance in accumulation phase) will be able to offset it (ie, all the rich people they want it to affect).

Early retirees can use managed funds rather than shares, and get the full amount. Basically, this change makes SMSFs earn a lot less when they are in pension phase.

In some ways it it a lot of hoo-ha. The policy definitely will not affect the people they want it to affect, and who knows what it's going to look like once they've figured it out.


Thanks for the concise decision Tree Deborah :-)


Using that, on my FIRE plan (which is like 15 years away from hitting FIRE, no wait, I'm about to lose my job, make that 25...) I would be affected. I would have a small proportion of Australian ETFs (up to about 25%, I still haven't made a final decision on the precise amount), and aim to have my house paid off, and $20-$30k in 2018 dollars. I can survive on $20k but I will need a bit more to travel overseas more.


That sounds CRAZY your parent's situation! Seriously, how does the pension system allow someone to be self funded but be ineligible for a pension like that, and, be on an income under the Pension ?!?!?!?! The whole point of the aged pension is to ensure a minimum standard, of living, hopefully above the poverty line, for our elderly.


That's shameful. I'm so sorry to hear that Deborah.

deborah

  • Walrus Stache
  • *******
  • Posts: 7667
  • Location: At Home
Re: Shorten and franking credits
« Reply #24 on: March 16, 2018, 07:03:19 PM »
No, it's what a lot of self funded people do. The superannuation system expects people of their age to withdraw 13% every year - because they are going to die soon. But the self funded people look at the $500k - $800k nursing home Bond fee (it is refundable when you leave - ie die), and all the other costs of aged care, and refuse to draw down their capital.

The problem is that there is no product currently available in our low interest economy that will give them the peace of mind that they will have enough money to last the remainder of their life including if they end up in a nursing home. So they have the wrong investments (fixed term bank deposits etc.) that give them little yield. And they still have more assets than they need to get the pension. And they won't take any advice. And, anyway, shares is not the way to go if you are in your 90s and probably only have a few years of life left.

potm

  • Pencil Stache
  • ****
  • Posts: 549
Re: Shorten and franking credits
« Reply #25 on: March 16, 2018, 07:24:30 PM »
You can have a taxable income of much higher than $37k and still be effected if your income is substantially from fully franked dividends. See my example in the Australian investing thread.
This change doesn't effect the majority of Australians who work and have super in APRA super funds. It effects retirees the most, especially early retirees who can't utilise super to fund their living.

Most Australians just don't have a good understanding of franking credits and tax rates, including Labor policy makers it seems.
As has been pointed out, the problems with the rich benefiting too much is with super, not dividend franking.
The change to make them payable as a refund was actually introduced to help out low income earners. Back then super didn't have a 0% tax rate yet, that came later.

deborah

  • Walrus Stache
  • *******
  • Posts: 7667
  • Location: At Home
Re: Shorten and franking credits
« Reply #26 on: March 22, 2018, 06:28:16 PM »
Agree with Potm.

However, Noel Whittaker has this article, which basically reiterates what I said above - http://www.canberratimes.com.au/money/tax/dying-retirees-to-blow-hole-in-labor-s-59b-tax-grab-20180322-p4z5uk.html