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Labor wants to scrap a policy which means some who pay no tax get $2.5 million refund





Labor wants to scrap a policy which means some who pay no tax get $2.5 million refund

By political reporter Dan Conifer

13 Mar 2018,

When paying dividends to domestic shareholders, companies include what are known as franking credits.

These credits ensure company profits are not double-taxed, and can be used to reduce the tax bill of an individual or superannuation fund.

But after a change in 2000, shareholders not paying any tax can then convert credits into a cash refund from the Australian Tax Office.

"John Howard and Peter Costello made it unsustainable by introducing tax refunds," Shadow Treasurer Chris Bowen said.

"We can't afford this any longer, the budget's under pressure, and difficult decisions are necessary to ensure the budget returns to surplus."

Mr Bowen said the cost of the Howard-era policy had exploded and now exceeded the Commonwealth's annual spending on public schools.

Benefits flow to self-managed superannuation funds

According to the Opposition, more than nine out of ten taxpayers would be unaffected by its change.

Much of the benefit of the refunds flows to self-managed superannuation funds (SMSF).

People with SMSFs in the retirement phase of super — where the earnings might not be taxed at all — often receive the refund.

"Some people have engineered their affairs so they can get maximised refunds," Mr Bowen said.

"It is an anomaly in the tax system — most tax concessions aren't refundable — this is one which stands out and one which is due for reform."

"We are the only fully-refundable imputation system in the world."

But Treasurer Scott Morrison called it a brutal and cruel blow for retirees and pensioners.

"Even by the Labor party's own admission they are admitting that pensioners will be hit by stealing the tax refund of retirees and pensioners and low-income earners," Mr Morrison said.

The political argument about the policy centres on who would be most affected and how well off they are.

Labor's policy said it would be wealthier retirees who are most likely to claim cash refunds, because share ownership is highly concentrated amongst wealthier households.

Opposition Leader Bill Shorten said half the benefits of the total benefits of the cash refund scheme go to the biggest 10 per cent of super funds which have balances above $2.4 million.

Finance Minister Mathias Cormann said Labor could not claim no-one would pay more tax when the policy raises $59 billion over 10 years.

Senator Cormann called it a $59 billion tax hike.

"More than a million retirees, many of them pensioners or part-pensioners, will pay more tax under this proposal," Senator Cormann said.

Independent economist Saul Eslake said 92 per cent of Australian taxpayers did not receive imputation credits "and as a result will be entirely unaffected by the change".

Mr Eslake called the ALP policy "sensible economics".

ALP won't release detailed costing

The Opposition said its policy had been costed by the independent Parliamentary Budget Office (PBO).

The ALP would not release the costing, but said the PBO found:

           The policy would save $11.4 billion in 2020-21 and 2021-22

           The plan would affect about 200,000 SMSFs

           Some SMSFs received cash refunds of up to $2.5 million in 2014-15

           Of credits refunded to SMSFs in 2014-15, half the benefits went to the top 10 per cent of funds (which all had balances exceeding $2.4 million)

Labor said charities and not-for-profit institutions, including universities, would be excluded from the change.

Labor Leader Bill Shorten will announce the policy today during a speech in Sydney, and will emphasise that those affected would not pay any additional tax.


 














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