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Government committee hands down franking credit report
The Standing Committee on Economics has advised against Labor’s policy to remove refundable franking credits, after determining that it would impact individuals on modest incomes and discriminate against SMSFs in favour of APRA-regulated funds.
Following the announcement by Labor in March last year that, if elected, it planned to remove cash refunds for excess dividend imputation credits as a way of improving the budget bottom line, the Treasurer referred to the committee an inquiry into the implications of removing refundable franking credits.
The committee has now released the report on the inquiry with two key recommendations. You can access the report here.
Based on the evidence received during the inquiry, MP Tim Wilson said that, based on the evidence received during the inquiry, the committee recommended against the removal of refundable franking credits.
The committee stated in the report that “any policy that could reduce Australian retirees’ income by up to a third should only be considered as part of an equitable package for wholesale tax reform”.
In its conclusion in the report, the committee said that it determined that the Australian Labor Party’s (ALP) policy will hit people of modest incomes who have already retired, and who are unlikely to be able to return to the workforce to make up for the income they will lose.
“In doing so, the ALP’s policy will force many people, who have saved throughout their lives to be independent in retirement, onto the age pension. This defeats the stated purpose of the policy, which is to raise revenue,” the report stated.
“The ALP has said that its policy to scrap refundable franking credits is designed to tax the wealthy. This is an unfair and untrue characterisation of the 900,000 Australians who will be affected by the ALP’s policy, and the distributional data relied upon to assess the distribution of refundable franking credits does not factor in the introduction of the transfer balance cap.”
The report also referred to research undertaken by the Alliance for a Fairer Retirement System that claimed that, in 2014–15, over half of those receiving cash refunds for their franking credits had incomes below the $18,201 tax-free threshold of the time, and that 96 per cent had taxable incomes of less than $87,000.
“These people are hardly wealthy, yet they stand to lose up to 30 per cent of their income under the ALP’s plan,” the report stated.
The committee also found that the policy “discriminates against retirees in SMSFs, in favour of members of APRA-regulated industry and retail superannuation funds, and those eligible to receive a part or full aged pension before 28 March 2018”.
“The policy may also reduce the value of some Australian shares and reduce investment in Australian companies,” the report said.
“A range of submitters were concerned about the need to rearrange their investments, and to reduce spending, particularly on private health insurance and charitable donations as a consequence of the ALP’s policy.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
Some of them will already be at the maximum age pension, so they will lose Franking credits and eat into their meagre assets.0- Surely there are better, more efficient ways to tax seniors. Prior to 2007, pensions were taxed at marginal tax rates less an offset for the 15% tax paid. Therefore those that chose to withdraw higher amounts were more likely to need to pay tax. This is skewed to those who have more capacity paying the tax as they would be drawing higher amounts. Additionally, there was a maximum withdrawal amount. Meaning that people were actually encouraged not to spend the lot at once and go on the age pension straight away. Why not bring this back? It seems so much simpler and fairer than stealing imputation credits. Perhaps have conditions such as requiring a pension be commenced as the method of drawdown. Put restrictions on withdrawing lumps sums such as TSB under a certain amount, reaching a certain age, ill health requiring aged care as examples. While they are at it, they should also remove the death tax on super benefits.0
- so the low income retirees loose the franking credits and tbe wealthy can use tbem to help pay their income tax. where is the logic in that.0
- Figures are rubbish. Of course in 14-15 96% were below $87k taxable income.
In that year $200k ab pension income only would have taxable income of zero.
Labor in typical style has no concept of how markets work. Just look at how they’ll bifurcate the resi neg gear market with their good idea and beyond stupid implementation proposals.
Answer for Fr credits. Include tax excempt income then apply the credits, then no net cash refunds.
Aged pensioners fine. Big pension incomes will pay some tax, one rule for all, no SMSF discrimination.
It’s not hard but labor struggles massively with common sense policy, esp if it advantages industry funds over SMSF’s.0 - and ppl complain the ABC being biased?? FFS, this could hardly be anything else other than LNP dogma being sprouted, with Wilson Asset Management in tow, data mining personal information for their marketing database. Pfft. "a life time of saving", this policy has been in place since 2003, 16 years, not a lifetime. Waa Waa Waa, no wonder millenials hate us, most over priviledged, under performed generation there is.0
- I think you miss the point entirely. To have an SMSF one would have had to save, presumably, throughout their lifetime - not to have just saved franking credit refunds for 16 years.0
- In addition those on the age pension as of March 2018 will continue to receive franking credits whilst those who subsequently get the age pension will be excluded. The proposed changes do not meet the fairness test. It is arbitrarily discriminatory. For those of similar means some will get franking credits others will not.0
- I strongly agree with the statement: “discriminates against retirees in SMSFs, in favour of members of APRA-regulated industry and retail superannuation funds".
Time we ensure some stability in the retirement future.0 - What is being missed is the long term structural changes that arise to compensate or take advantage of new policy measures. For example when excess franking credits were non-refundable unit trusts were the preferred vehicle for managed funds. Post refundability Listed Investment Companies took control, as they paid franked dividends, We will go back to the future. And the sting in the tail is that companies may seek to no longer pay their full share of company tax as the franking credit appetite wanes.0
- For seniors with income less than $29,608 Labor's no-refund of dividend imputation tax credits would result in dividends taxed at 30% (company rate) and all other types of taxable income at 0 per cent. Labor are now referring to refunds of over paid tax as a 'gift'. They can no longer be unaware of the imputation part of dividends so the term 'gift' can only be intended to hoodwink voters.0
- You would think that any retiree eligible for the Age Pension would already be receiving the benefit irrespective of the level of franking credits they receive. Can't work out how a reduction in income via the elimination of franking credits is going to improve their eligibility for the Age Pension.0
- Their disposable incomes will be reduced so they will have to dip into their savings to fund living costs. This will deplete their assets quicker and increase the dependence on age pension, resulting in higher pension entitlement. Seriously Chris?0
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