Andrew Conway

IPA questions unfairness of Labor’s proposal to remove refundable franking credits

The Institute of Public Accountants (IPA) is questioning the unfairness of Labor’s proposal to remove the ability for individuals and superannuation funds to claim their full entitlement to franking credits.

More self-funded retirees are becoming aware of the implications of Labor’s proposed policy and the IPA is questioning “its unfairness”, it said in a statement on Monday.

“The refunding of imputation credit policy has been in operation for close to two decades and removing it in a piecemeal way without dealing with the consequences is fraught with danger,” said IPA chief executive officer, Andrew Conway.

Mr Conway noted that piecemeal change fails the fairness and equity test that policy makers generally strive for.

“Any policy change that has inconsistent outcomes (industry funds versus SMSFs; pension guarantee rule) will struggle to meet the fairness test.

“In addition, retirees with large balances in excess of $1.6 million in superannuation are also less impacted than those with lower balances,” Mr Conway said.

He noted that the method for taxing all forms of savings needs to be looked at more consistently.

“A more holistic approach to taxing personal savings across all asset classes as recommended by the Henry Review would be more beneficial than changing one aspect in isolation.

“We do not support any changes in the removal of refundable franking credits unless it is associated with more holistic tax changes to the treatment of savings more broadly,” Mr Conway stressed.

He revealed that a survey of the IPA members shows that 95 per cent of respondents do not support any change.

“The inquiry has put the spotlight on the policy proposal. The IPA was represented at the inquiry, putting forward our members’ views, along with our submission,” Mr Conway concluded.

13 thoughts on “IPA questions unfairness of Labor’s proposal to remove refundable franking credits

  • February 8, 2019 at 1:59 pm
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    In my opinion the policy of cash refunds for excess franking credits is NOT sustainable.
    It is giving money away, i won’t have to pay for it my kids will.
    Franking credits should be NON refundable, no other country in the world gives free money away.
    Make the company tax rate 15%, this will kill two birds with one stone, it makes investing in Australia far more attractive and eliminates much of the excess franking credit.
    And more cash is given back to shareholders through the higher franked amount being 85% instead of 70%.
    It’s a win,win,win scenario.

  • February 8, 2019 at 2:24 pm
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    Well said Andrew and keep up the fight with the Labor party, it is absolutely unfair to just look after the industry funds that the unions control and not the small SMSF funds.

  • February 8, 2019 at 2:31 pm
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    Don’t feel too sorry for retirees (people my age). We have lived in very fortunate times. A lot easier to obtain a loan; no student loans; no high tax deducible child care feels; great unsustainable superannuation benefits; a lot of accumulated wealth – most of which will not be subject to tax. The sensible and budgetary responsible way to apply franking credits to retirees is to include superannuation pensions in annual individual tax returns – the superannuation pension remains tax free but other income is taxed at the correct marginal tax rate. Only genuine low income earners then receive a franking credit tax refund.

    The proposed Labor Party policy smacks of Industry Superannuation Fund lobbying. Tax rules are best applied uniformly. The sensible and equitable way to tax superannuation funds is simply to halve the imputation credit rate for all superannuation funds. Refunds are then eliminated in accumulation phase and halved in pension phase. No tax system is perfect but this change is a fair balance and does not discriminate.

  • February 8, 2019 at 2:51 pm
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    I will only agree to this proposal, to remove refundable franking credits, if all savings and investment income including interest and dividends for all individual taxpayers and superfunds would be taxed at source a flat non- refundable withholding tax rate of 10% and treated as non – assessable income and non – exempt income.
    I will also recommend to the government to make it illegal to deposit all employer superannuation contributions into managed superannuation funds and into self- managed superannuation funds.
    Employer superannuation contributions including “superannuation guarantee” should be deposited into a government annuity fund and paid as non asset and non – income tested periodic pension or annuity only to eligible employees and to other eligible resident taxpayers on their retirement age without the need to asset test. This method would reduce social security pensions and it would serve the purpose of its creation.
    Thank you for your attention

  • February 8, 2019 at 3:22 pm
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    I’m sorry but I don’t agree. It’s not because the refunding of franking credits has been done for over 20 years that we can’t change it. Besides when a company has accumulated franking credits by paying taxes and then passes on the franking credits to its shareholders who then get a refund for it, effectively no tax has been collected and worse it’s negative taxation in most cases. I don’t see this as part of a progressive tax system.

  • February 8, 2019 at 3:43 pm
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    Australia is a highly corporate taxed country, if they want to do away with imputation credits then the company tax system should be drastically lowered so the investors can get higher dividends yields, if is not done then the Australian Tax revenue system becomes unjust, equitable as the ATO will get two bites of the cherry.
    I strongly believe that the politicians should not get involved with the taxation system as it just go to prove that that they have zero understanding of the system nor the full ramifications of their comment

  • February 8, 2019 at 3:51 pm
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    Why not let’s deal with small businesses having to pay payroll tax particularly in wa , lift the ceiling rate

  • February 8, 2019 at 4:39 pm
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    It is disappointing that so many people in this country, including many who are educated believe the “spin” of the political parties and their affiliated entities.
    The Labour party proposal to stop refunding surplus tax credits is removing one of the fairest parts of the tax system. Tax gets paid by the corporates, dividends are paid to shareholders and tax is paid on those dividends according to the individuals personal tax rates.
    If the Labour Party needs more tax to fund their spending then it is more transparent to change the tax rate. This is what they should look at doing so everyone can understand what is happening. To do otherwise is to hide what they are really doing.
    Of course, the Labour Party claim they are targeting only the wealthy [ which I will add is not correct], however they neglect to say that there are wealthy employees who will still get the benefit of the current system. CEO’s who frequently have shares in the companies they manage will still get their franking credits returned to them and they will be taxed at their individual tax rates.
    I appreciate the IPA weighing in to this debate, albeit the headline is a touch misleading – and those that only read headlines won’t realise what the IPA is really saying.

  • February 10, 2019 at 8:04 am
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    Why should one section of the community lose 30% of their income, and another lose nothing. This was a Hawke government act, mainly for the benefit of the well off. Average wage earners did not benefit. This is a PAYE tax, and should be trerated as such. Is there a thing called “Equity”. Those with sufficient funds will not lose.
    Unfortunately Tax reform is not on anyone’s agenda. The piece meal approach of ALL political parties is developing a have and have not attitude to the determinant of the nation. The current political climate is a clear sign of this.

  • February 10, 2019 at 8:55 am
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    Removing franking credits reintroduces a two tier tax system that some individuals (usually with high net worth – the supposed Labor Party “target”) having a greater ability to rearrange their investments to avoid/minimise the impact of the proposed change.
    The end result is that profits derived by companies are taxed, and then what is left is taxed when received by shareholders – double taxation. In USA (for example) dividends are taxed at a different rate when received by shareholders – with end result not too dissimilar to our franking credit system.
    Under the Labor Party policy – if income is diverted from the company BEFORE corporate taxes are assessed (eg management fees) – then the income is only taxed ONCE.
    Unfortunately Mr Shorten likes to produce policies that “sound good – recover money from the wealthy” – but which demonstrate poor thought processes of the implications, and uses invalid comparatives. A broad statement that other countries do not allow a franking credit rebate – may be “correct” statement – but ignores the overall corporate/personal tax system – which often generate a similar outcome.

  • February 11, 2019 at 9:57 am
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    I believe that the removal of refundable franking credits is not fair and equitable. Industry funds will be so much better off than SMSF’s because they can use the franking credits to cover contribution tax for those members in accumulation phase. Also individuals that receive the refundable franking credits do so because they are low income earners. The country obviously needs more tax collected as we spend too much money – this is not going to change anytime soon. One way to collect more tax is to raise the tax free threshold for seniors and pensioners and then include all superannuation income as taxable income so that if they are receiving a good income they will pay some tax but only on a marginal rate. I also believe that all superannuation funds with members in pension phase should pay tax on earnings over a certain level rather than having the transfer balance cap. I agree that self funded retirees with high incomes could contribute more tax but this needs to be on a marginal basis so that those on a moderate income are not disadvantaged. Something definitely needs to be done but removing refundable franking credits is not the way to do it!

  • February 11, 2019 at 11:35 am
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    Unfair! Hit the nail right on the head. I can’t believe the Labor Party could endorse something like this. Their lack of understanding of how our tax laws operate have contributed to this clumsy effort.

  • February 12, 2019 at 8:58 am
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    There are many perspectives and variables involved in the appropriateness of dividend imputation franking credit refunds. They include self interest; budget considerations; ideology; economics; fairness; intergenerational equity and taxation uniformity.

    One thing is for certain. The Labor Party process for determining taxation policies is poor. An obvious lack of independent and expert input.The proposed franking credit policy will be a boom for tax advisors and financial planners. There will be all sorts of financial hijinks and superannuation will move further away from the purpose from which it is intended. Taxes should be uniform and simple.

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