Life Begins At » Cash refunds lost under Labor’s cash plan

Cash refunds lost under Labor’s cash plan

Article source: Sophie Elsworth and Anthony Keane, News Corp Australia Network

Exclusive: Investors reliant on share returns are set to have their cash refunds slashed amid fears changes to tax credits could push tens of thousands people onto the aged pension.

If elected next year the Federal Labor Party is set to deny investors franking credit cash refunds on their shares, hitting the hip pockets of Australians with share portfolios hard.
It will not just impact self-funded retirees but also those on low incomes who rely heavily on cash refunds from Australian shares.

National Seniors Australia’s chief advocate Ian Henschke warned it could result in “odd behaviour” by those on the cusp of getting a pension.

“It may well result in some odd behaviour because the franking credit issue is affecting hundreds of thousands of retirees,” he said.

“It could see more people going on the pension.”
He said it could result in those hoping to keep their cash refunds having to adjust their financial affairs by getting rid of some of their assets, which are means tested for pension eligibility.

Labor has proposed to dump dividend imputations which will significantly impact many retirees including those who are self-funded.

Labor said under the proposed changes — which would not be grandfathered — it would exempt age pensioners, part pensioners, veterans pensioners and income support recipients under the massive revamp to the nation’s dividend imputation system.

Latest figures from Treasury papers showed in 2014-15 individual share investors raked in $2.3 billion in franking cash credits.

Of those, more than half who received cash refunds (671,400) had incomes below the $18,201 tax-free threshold.

About 95 per cent of 1.07 million Australians had taxable incomes of less than $65,000.

Dividends paid from company profits are subject to Australian’s company tax rate of 30 per cent.

This means shareholders receive a rebate for the tax paid by the company on profits distributed to them as dividends.

Sydney self-funded retiree Wayne Hampton, 65, a retired financial adviser, labelled the changes “unfair.”

“It discriminates against self-funded retirees who have done everything right according to the superannuation rules to accumulate funds so they are not relying on government assistance,” he said.

Many share investors are concerned changes to the dividend imputation system could leave them worse off.

“We would have to look at our private health insurance and consider if it’s something we still need because that would be a bigger saving.”

Under the proposed changes there would be a “pensioner guarantee” for full or part-pensioners which means they would be excluded from the changes.

If Labor is elected at the next federal election the policy would start on July 1, 2019.

The Self-Managed Super Fund Association’s chair, Dr Deborah Ralston, warned that many low-income Australians will also be impacted by the changes.

“Many of these Australians are retirees on zero or low marginal tax rates, who have little superannuation and are reliant on the dividends and cash franking credit refunds from Australian shares to provide a proportion of their retirement incomes,” she said.

“Unfortunately many people who will be affected by this policy will be unaware until it happens.”

Melbourne-based self-funded retirees John and Lynette Gates, aged 94 and 87, have been completely self-sufficient in retirement and said the changes would leave them $17,000 worse off a year.

Retirees John and Lynnette Gates are worried about the potential changes to dividend imputations and cash back they get on their share dividends.

“We now suffer from stress and anxiety should this loss eventuate,” Mr Gates said.

“I know how to manage my finances but I can’t see any way I’m going to pick up this $18,000 that Bill Shorten tends to grab every year.”

Mr Gates said he and his wife would have to significantly cut back on their spending and eat into their existing shares by selling them off.

“This will reduce our income further because we will have less dividends,” he said.

Assistant Treasurer Stuart Robert noted a fresh analysis by the Financial Services Council that found 50 super funds would lose an average $4.7 million each in franking credit refunds.

“That’s about one-fifth of a billion dollars being taken away from ostensibly younger Australians through our political opponents’ poorly designed package,” he said.

“Franking credit rebates are an entitlement as shareholders in companies and should not be taken away.”

Shadow Treasurer Chris Bowen said dividend imputations had come “at an exponential cost” starting at $500 per year when they were introduced in 2000 and a further $8 billion in the coming decade.


— Dividends are paid from company profits and subject to the Australian company tax rate at 30 per cent.

— Shareholders receive a rebate for the tax paid by the company on dividends distributed.

— These “franked” dividends have a franking credit attached, representing the amount of tax the company has already paid. These are also called imputation credits.

— You can receive credit for any tax the company has paid, to offset your tax rate.


Sam receives a fully franked dividend of $700 and before the company tax was deducted it would have equated to $1000 ($700 + $300 tax.)

The franking credit — tax already paid by the company — is $300 or 30 per cent of $1000.

At tax time Sam must declare the full $1000.

If his marginal tax rate is 15 per cent he will receive 15 per cent of $1000, so a $150 franking credit.

If his tax rate is different he may receive a different refund or even pay additional tax.

If he is in a low tax bracket he may receive the full franking credit amount.

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Sophie Elsworth and Anthony Keane, News Corp Australia Network

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