THERE has been a great deal of debate, and misinformation, about Labor’s policy to remove cash refunds for franking credits, including a recent letter to the editor in the Oberon Review (Michael O’Brien, February 14).
A few facts would help readers of the Oberon Review better understand the current debate, and why Labor’s policy will deliver a fairer Australia.
Franking credits are paid to people who receive a dividend from the shares they own. The credit ensures that the dividend is not taxed twice: once when the company makes the profit, and again when the dividend is paid.
For people who have taxable income, the franking credit reduces their tax bill.
However, some shareholders receive cash refunds for their franking credits yet they pay zero tax. That’s right - zero tax - yet they receive a tax refund. How does this happen? These shareholders are no longer working and use the dividends from their share portfolio as income. They have no taxable income, but they still get a tax refund.
Only four per cent of Australians can access this tax loophole, but all of us pay for it. Eighty per cent of the benefit goes to the wealthiest 20 per cent of retirees. The system costs Australia $5.9 billion, which is more than the federal government spends on public schools.
Soon this ‘tax refund’ to people who pay no tax will cost us $8 billion. Let me put it this way: a person who gets a cash refund for franking credits of $10,000 a year has nearly half a million dollars in shares; a $20,000 cash refund means a share portfolio of nearly a million dollars. To put this in context, a full aged pensioner with no income or assets gets just under $25,000 a year in a pension.
Labor is cracking down on this tax loophole that gives tax refunds to people who have a lot of wealth but who pay no income tax. Pensioners are not affected, thanks to Labor’s Pensioner Guarantee.
Let’s be clear - under Labor’s plan, no one will pay a single cent more tax. No one will lose a single cent from their share dividends. No one will lose a single cent from their super contributions. No one will lose a single cent from their pension.
Everyone who gets share dividends can still use the imputation system to reduce their tax bill, which avoids double taxation. But they won’t be able to get a tax refund if they’ve paid no income tax.
There is nothing wrong with wealthy people buying lots of shares - but why should pensioners and working families struggling to pay the bills have to subsidise it?
Labor will give all Australians a fair go. Labor understands that times are tough for many pensioners and seniors.