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A frank look at Chris Bowen's $67,000 question

The $64,000 question from the recent Federal election is, “Why did Labor lose?”. Many well-informed retirees will say we should be talking about the $67,000 question. Some of you may ask, “Why bother with this debunking now Labor has lost the election?” The answer is that many people who heard Chris Bowen's favourite example about a nurse believe it is the truth, which is a clear risk for sensible future retirement income policy development.

Throughout the campaign, the then Labor Shadow Treasurer touted this $67,000 example at every opportunity. For instance, on ABC’s Q&A on 29 April:

“Let’s take an example. If you’ve got a nurse who’s earning around $67,000 we charge that nurse around $13,000 a year tax, roughly. Fair enough, that’s what we charge her. If you’ve got a retired shareholder who owns their shares in a self-managed super fund, who earns $67,000 in dividends, we don’t charge any tax. Fair enough. Then we send a tax cheque refund for around $27,000.

$13,000 we take from the nurse; $27,000 to the retired shareholder, through their self-managed super fund. Same income; different outcome. I can tell you it’s not fair.”

Sounds persuasive. That's an unfair $40,000 difference in outcomes. Maybe to some, but let’s check the numbers.

The detail required for a fair analysis

As any taxpayer who has ever received a salary knows, wage and salary earners never receive their actual stated salary. They only receive what’s left after PAYG tax is taken out, with a final reckoning at the end of the financial year. So Mr Bowen’s nurse doesn’t receive $67,000. Before submitting her tax return, she probably receives $52,000 throughout the year, assuming $15,000 PAYG tax. In contrast, Mr Bowen’s retiree’s super fund is earning $67,000 after various taxes have already been taken out. Thus the comparison is false - the nurse and the retiree are not receiving the same income.

We'll start with an informed investor who started his (or her) superannuation investing in 1988, just at the time that superannuation funds were first taxed. His aim, seemingly unachievable at that time, was to produce an income stream of $67,000 per annum in retirement from dividends on Australian shares, on which he expected to pay full income tax when received from his super fund.

Back in 1988, dividend imputation had only recently been introduced for individuals and in the press there was widespread speculation that, in addition to individuals' personal portfolios, imputation would be extended to their retirement savings, i.e. superannuation funds. It was also widely believed that this extension would come at the cost of taxation of superannuation funds’ investment earnings.

If dividend imputation was so extended then our investor's challenging task of producing $67,000 per annum in his retirement would be that much more achievable. Instead of having to generate $67,000 in cash dividends after company tax, his fund would need only generate that same amount in grossed-up dividends. For example, if when he retired, company tax was 30%, then his cash dividend target would be 70% of $67,000, i.e. $46,900.

And on cue, the government released its May 1988 Reform of the Taxation of Superannuation, which did in fact so extend dividend imputation, at the cost of 15% taxation on investment earnings.

And since he was in an employer superannuation fund, it didn't matter that imputation credits were not refundable since they would be used by the fund to reduce its tax payable and then be apportioned back to him.

However, the May 1988 statement also contained an initiative that had not been contemplated in the run-up to its release. This was the taxation of employer and deductible employee contributions at the same rate as investment earnings, 15%. Fortunately for our investor, the Federal Treasurer, Paul Keating, explained that this initiative would not cost superannuation savers 1¢ in retirement benefits, as it was to be accompanied by a compensating reduction in income tax on superannuation benefits, be they lump sum or pension.

There is no difference in the end results between a given rate of tax taken out at the contribution stage and the same rate applied to the pension at the benefit stage. The amounts of tax are different, but that is of course simply the decades-long difference in the time value of money.

With 15% taken out of all the contributions that would finance our investor’s retirement pension, that would leave the investor’s contributions accumulating to generate a cash dividend of only 85% of $46,900, i.e. $39,865, which, including franking credits of $17,085, grosses up to $56,950 of taxable income in the fund.

Investor versus nurse

Let’s now assume that the investor reached his target and consider how his outcome compares against that of Mr Bowen’s nurse. The personal tax rates used are those applicable over 2018/19, ignoring Medicare and any other variations that might apply in individual cases.

Mr Bowen’s nurse’s tax on $67,000 would be assessed at $13,322, entitling her to a tax refund of $1,678 after allowing for $15,000 PAYG tax, leaving her with after-tax income of $53,678.

For our investor (on a level playing field) there have been two lots of tax taken out:

  • contributions tax equivalent to 15% on $67,000, i.e. $10,050
  • company tax of 30% on ($67,000 – $10,050), i.e. $17,085

Let us also assume that he has reached his preservation age so is eligible to start a pension from his fund, equal to the dividends and franking credits received by his fund, i.e. $56,950. His final after-tax position will depend on whether he has reached age 60 or not. We’ll look at both cases.

Aged under 60

Being under 60 he must pay full tax on his pension, less allowance for the effective pre-payment of income tax via contributions tax:

  • marginal tax on $56,950 = $10,055.75
  • less 15% tax on $56,950 (already paid within the fund) = $8,542.50
  • gives tax payable = $1,513.25

This leaves our investor with after-tax income of $56,950 – $1,513.25 = $55,436.75.

Aged 60 or over

Being 60 or over he is no longer required to pay the under-60 tax bill of $1,513.25. This will leave him with after-tax income of $56,950.

A level playing field rather than a $40,000 question

Let’s put all these after-tax results side by side so that we can judge the validity of Mr Bowen’s conclusions:

Mr Bowen’s nurse $54,000
Actual nurse $53,678

Mr Bowen’s retiree $94,000
Actual retiree <60 $55,436
Actual retiree >60 $56,950

In other words, a retiree truly comparable to Mr Bowen’s nurse is not $40,000 better off after tax, but rather a mere $3,000, of which just $1,500 can be attributed to over-60’s tax exemption.

If more people knew the history and studied the facts, they could better judge the sheer unfairness of the Labor proposal to eliminate the refund of franking credits. The only tax this retiree didn’t pay was the $1,513.25 he didn’t have to pay once he turned 60. And for this, Labor wanted to strip him of $17,085.

No wonder he and his numerous not-hugely-well-off ilk revolted at the election.


Geoff Walker is a former Chief Actuary at the State Bank of New South Wales and winner of the 1989 JASSA Prize for published research on the implications of the then relatively-new dividend imputation system. This article is general information and does not consider the circumstances of any investor.


John Simkiss
June 25, 2019

Helpful to remember some established policy facts:
Asprey and Campbell established to look through the company veil to treat shareholder as beneficial owner for tax purposes
Tax range outside super is 0-45% plus Medicare
Tax range in super is 15% contribution tax, 15% income tax pre-retirement, and 0% on income from assets under $1.6m assets with 15% on income above $1.6m
Refund re franking credits was part of package to introduce GST

The essence of a policy reform is to understand the existing policy, it’s history and complexity. And be fair about changes. And recognise that change is difficult which is perhaps why Henry accepted imputation, even if only “for the time being”.

And you still have to wonder what on earth they thought the Franking Inquiry was doing! And whether it wasn’t just a pre-Batman thought-bubble. But we haven’t heard the end of it as 15% plus refunds is a very concessional rate on some very very very large SMSF’s.
John Simkiss

June 25, 2019

I have spent many hours in discussion with sitting and aspiring MP's.

In general they are poorly informed, and don't have or make the time to master these relatively simple sums. In fact this is part of a general decline in numeracy at all levels of our community, combined with increasing complexity of taxation and superannuation rules and laws.

Liberal candidate did not know that MP's super contribution rate was 15% vs others 9.5%].

Greens candidate thought 2.5DegC was the magic number to avoid runaway climate change, vs the "real" number of 1.5 DegC. (Both figures entirely arbitrary)

D Ramsay
June 24, 2019

Excellent article Geoff and thanks for doing the numbers.
We should, somehow, keep throwing these examples into the faces of pollies (of all persuasions) who over simplify complex financial matters that misinform the public, and hold these pollies accountable for their glib, misinformed and often plain stupid comments?
i.e. Demand evidence that what they say has been fully researched so that the research can be either confirmed or debunked

Richard Lyon
June 22, 2019

Why account for contributions tax but ignore the deductibility of those contributions and the favourable tax on investment returns as they are accumulated?

And we needn't stop there! Your retiree has almost certainly benefited from a free university education, while the nurse is paying HECS for hers.

And we could add that the retiree is likely to own a well-located home worth much more than our nurse could afford on her income. So she's probably paying rent, while he has long-since paid off his mortgage.

On the flip side, people have pointed out some of the tax minimisation strategies available to the nurse. Perhaps she's one of the much-touted ones negatively-gearing an investment property?

All of that means that you can come up with numbers and technical arguments to suit any position. However, in the real world, nobody cares about the technical arguments, even when they ARE presented fairly.

The Bowen picture is a simple one: she is working hard for her $67k and pays tax on it, while he gets $67k and a tax refund. Spin it however you like, that doesn't look fair.

Tony Dillon
June 25, 2019

I'm not sure why discussion on this article has morphed into a comparison of personal financial circumstances. Perhaps it's because the author has way over-analysed the comparison Bowen was making. Which simply was a wage earning nurse versus a dividend income receiving investor, in a particular year.

There's no mention in the example of a build up of super over thirty years, or contributions, or deductibility, or pensions, or contributions tax, or anything like that. It was simply an investor gets some dividends, and a nurse earns a salary. Full stop.

What the author didn't pick up on was that the investor received a $27,000 (sic) tax refund. This was obviously the franking credit, though Bowen was a little out in his example, because accompanying a $67k paid dividend would be a $28,700 franking credit.

So Bowen's example was simple enough, but of course he was misleading on two counts. First, he was comparing $95.7k gross investment income with $67k gross salary income. Not like with like gross amounts. Second, the investment was earned in a tax free super environment, while the salary earned was subject to ordinary income tax. Not a like with like taxable environment.

So as a comparison, his example was simple, but flawed. And reading any more into than that, is simply over the top.

Geoff F
June 26, 2019

"his example was simple, but flawed. And reading any more into than that, is simply over the top."
I disagree - Bowen was attempting to sell his argument as fact/truth to the voting population of the entire country, many millions of people, as part of an effort to change the government! Pointing out the numerous errors in his argument, that he repeatedly trotted out with a straight face, was necessary and appropriate, and to call it "simply over the top" is an extraordinary comment. Bowen either understood what he was doing, in which case it seems he was trying to deceive millions of people - or he didn't, in which case as a potential Treasurer, I find his lack of understanding a valuable insight.

Tony Dillon
June 26, 2019

Geoff F,

You did not understand what I said. I actually agree with you entirely, that Bowen was either being deceptive or was clueless (or maybe both).

I said the example (meaning Bowen's example) was "flawed".

"flawed" adjective: unsound, distorted, incorrect, inaccurate, erroneous, fallacious, wrong, impaired, weak, invalid.

I'm sorry, I couldn't be any more definite for you.

I also said the example was "simple". It was. It was a straightforward comparison of earned income vs dividend income. Nothing more, nothing less.

And I said "reading any more into it than that, is simply over the top". Meaning, just that. Just compare the two earnings amounts in a particular year under current tax law, on the information provided. Don't try and factor in subjective and extraneous life circumstances.

If you scroll down, you will see another comment from me (June 13) that totally debunks Bowen's claims.

Geoff F
August 12, 2019

Tony Dillon,
Actually, I did understand what you said, I just didn’t agree with all of it.
Nevertheless, thanks for your definitions of “flawed” and “simple”. My point was not about either, so it was unfortunate you seemed to interpret it that way.
My response didn’t mention the specifics of Bowen’s example, or offer arguments about why it wasn’t flawed or simple. The only reason I quoted from your second last sentence (“flawed and simple”), was to provide context for your last sentence (“over the top”) – because it had no context on its own – and my disagreement was with that.
My comment related to the context – not the content – of formerly potential Treasurer Bowen’s example, being that it was made as part of a campaign to try and mislead the voting public in an attempt to change the government – a big issue as far as I was concerned and so the significant response to it was NOT “over the top”, in my opinion.
Perhaps you felt that responses to Bowen’s example should have been ring-fenced to the specifics of what he said, but clearly many others didn’t see it that way.
I argue that many viewed what he tried to do as part of a larger picture, where it was yet one more attempt by a politician to mislead the public in a tight election and they saw through it for what it was, decided that “enough is enough”, and vented their anger accordingly with their responses to his $67K example. When considered in the context of Bowen’s arrogant stance on another policy, that if people didn’t like it, they could vote against him/them, it’s no wonder that many people were already seeing red.

I am disappointed whenever a politician, of any stripe, tries to deceive the public, and even more so when it’s in the context of an election, with the outcome and the future of the country in the balance. All politicians should be ashamed when they do it, and I hope they heed the lesson of the Bowen example (no pun intended), but I won’t be holding my breath. Maybe the term “the Bowen example” will become part of political folklore history.
Regardless of whether the then Treasurer hopeful believed what he was saying, and even though many people realised his argument was flawed and/or deceitful, it’s also clear that many people believed him, or at least took him at face-value, without questioning what he said. And so, in the heat of an election, it was absolutely necessary that his example be subjected to detailed analytical scrutiny by those who took offence or otherwise disagreed with what he attempted to do. As with many issues, unless there’s a lot of “noise”, a message might not be taken seriously by the media and reported back to the wider (voting) public. In this case, the extent of the response was such that it did pique the interest of the media and other interested groups, and people reacted accordingly, and as a consequence many others were able to make an informed decision about what had occurred. Of course, the extent to which it was a factor in their vote is a moot point.
So, to be clear, I was referring to your “over the top” comment, when I said that I disagreed, and “to call it “simply over the top” is an extraordinary comment. ” – perhaps an issue of perspective.
The irony of this perhaps “over the top” response hasnt been lost on me!

June 25, 2019

"Spin it however you like, that doesn’t look fair.",
"his example was simple, but flawed. And reading any more into than that, is simply over the top":

Spin it any way, it is dead certain that Bowen's example was arithmetically wrong - repeatedly. Not a good recommendation for a Treasurer - or a Government - or a Party wanting to spend big on schools.

Barbara Smith
June 16, 2019

No one has pointed out that higher income earners with adjusted taxable income over specified amounts in a particular year have paid an additional superannuation surcharge of 15% on their employer or personal deductible super contributions between 1997 and 2005 and since 2012. Adjusted taxable income includes, wages and income from self employment, taxable super contributions, dividends, franking credits, interest, rent and taxable capital gains.

Warren Bird
June 26, 2019

Barbara Smith,

I did.

Jon Kalkman
June 16, 2019

Judith Sloan had an interesting insight into franking credits in her article in The Australian, 11 June: “Bowen’s magic pudding proved a political mirage”

"The real story was about dividend imputation and how double taxation was avoided as a result of its operation. In point of fact, close to $50 billion in franking credits is distributed each year. Some of these credits cannot be used because they accrue to foreign shareholders and companies. But of the $24bn odd eligible for refunds, about $6bn take the form of cash refunds and the rest is used to reduce tax liabilities. In terms of the budget bottom line, there is no difference between a cash refund and a reduced tax liability, another point Bowen and Shorten seemed incapable of understanding."

In other words, of the $50billion collected in company tax, $26billion are franking credits that foreign investors cannot use, as they are not Australian taxpayers. Of the remaining $24billion, three quarters, or $18billion is used by Australian taxpayers to reduce or eliminate their personal tax and $6billion takes the form of cash refunds to taxpayers whose personal tax liability is lower than the credits they generate.

From the ATO’s point of view that is $24billion less tax collected than would otherwise be the case if franking credits did not exist, not just the $6billion in cash refunds. If the $6billion is a “gift” to taxpayer who get a cash refund, then the $18billion used to reduce or eliminate personal tax is also “gift”, because as Ms Sloan points out; “in terms of the budget bottom line, there is no difference between a cash refund and a reduced tax liability.”

Warren Bird
June 16, 2019

Jon, that’s just another way of looking at the point I’ve been making. The purpose of imputation is to refund all company taxes paid out of the earnings distributed to local shareholders so that they can be taxed at the shareholders’ own tax rates.

So many of those who think they are arguing against refunds are actually arguing against the entire system.

Jon Kalkman
June 16, 2019

Warren, it goes to the heart of what franking was designed to do. It ensures that Australian taxpayers always pay tax on total company profits (that is the dividends PLUS the company tax already paid) at their marginal tax rate. Whereas foreign investors always pay tax at the company tax rate because it is deducted before they get their dividend.

Lowering the company tax rate would still mean that Australian taxpayers pay tax on their share of the company profits at their marginal rate, but foreign investors would pay less tax. There may be good reasons for doing that but it does NOT mean less revenue would be collected from Australian taxpayers.

Labor’s proposal would have meant that some Australian taxpayers would have paid a minimum of 30% tax on those company profits regardless of their marginal tax rate.

Warren Bird
June 16, 2019

Yes, Jon, exactly. (I was agreeing with you,)

Tony Dillon
June 17, 2019

And of the $18b in refundable credits used to offset other tax (actually $17.6b) about $12.5b is used by individuals, and $5.1b by super funds. And with the average marginal tax rate of those individuals offsetting tax at about 40%, top-up tax paid by individuals is about $4.2b, which is a fair proportion of the $5.9b paid in refunds.

June 15, 2019

One other fact that gets overlooked with the ALP’s perceived unfairness example is that pretty much every nurse has the opportunity to salary package a bit over $9,000 per FBT year (sometimes more in a financial year if both FBT caps are compressed into one financial year that the both straddle).
Apart from the obvious unfairness amongst PAYG taxpayers, that only some can use this to pay their mortgage, utilities, annual trip to Bali etc with completely tax free money, it also begs the question why a real world comparison of a nurse to an self funded retiree doesn’t factor in salary packaging?
It amazes me that salary packaging doesn’t get the same criticism from the “envy politics” crowd as franking credit refunds?
At least all SMSFs are taxed consistently, more than you can say for all PAYG employees (and self employeds!).

Lloyd Taylor
June 14, 2019

The last word on this topic (at the heart of which was an attempt to provoke an inter-generational conflict for political advantage) must go to Chris Bowen:

On Wednesday 30 January 2019, in detailing his franking credit tax grab, Chris Bowen stated quite categorically on ABC radio "I say to your listeners, if they feel very strongly about this, if they feel that this is something which should impact on their vote, they are of course perfectly entitled to vote against us,"

The electorate listened, took his advice, and voted accordingly.

Tony Dillon
June 14, 2019

Geoff, that's quite detailed analysis. I also wrote a piece on this during the election campaign, taking a simpler approach but of course arriving at the same conclusion as yourself, being that Bowen's example was total spin. Here is my version:

Bowen’s Bungle On Franking Credits

Chris Bowen has trotted out his franking credits example of a wage earning nurse versus a dividend earning investor, on multiple occasions now in different forums. The most recent being Monday night on the ABC’s QandA (29 April 2019).

Mr Bowen said: “A nurse on $67,000 pays $13,000 in income tax. A retired shareholder with dividend income of $67,000 from shares in their self-managed super fund pays $0 in income tax and gets a tax refund of more than $27,000 from the Government. Same income, different outcome”.

Let’s unravel what he said.

In saying “gets a refund of more than $27,000”, he is referring to the franking credits attached to the dividend income. And that would actually be $28,700, which is the amount of company tax that would be withheld on dividend income of $67,000 (Bowen did actually say he meant $28,700 when subsequently probed by an accountant). Implying that the investor’s gross dividends before company tax totalled $95,700. And by returning the franking credits in full, that implies no tax was due on the gross $95,700 income. Which would be correct for dividends earned within an SMSF in pension phase, in a tax free environment.

Now to the nurse, who he says is “on $67,000”. But that is before tax if she pays $13,000 in income tax. For sake of comparison with the shareholder, he needs a nurse earning $95,700 gross of tax, to compare like with like. Still however, the comparison is invalid. Because he compares income earned in a tax free environment, with earnings in a taxed environment. And if gross earnings are the same in those two different scenarios, of course the after tax income of each will be different. But that’s not to say it’s not fair.

A valid comparison therefore would be to compare the nurse’s income with the shareholder’s income in the same tax environment. So let’s assume the dividend income sits outside super, and that the nurse earns $95,700 gross of tax income.

Then both her and the investor’s year-end tax liability will be the same because tax due does not differentiate by source of income. Tax due for both will be $23,900, meaning the investor is reimbursed $4,800 because she had the franking credit amount of $28,700 withheld for a possible tax liability at the time the dividend was paid. Both therefore, with the same gross of tax income, taxed the same amount, end up in the same net of tax position. As they should.

In effect, Bowen has demonstrated nothing. Other than the fact that no tax is paid in the pension phase SMSF. Nothing new there. That’s current super tax law. And he claims “same income, different outcome”, implying that it is unfair to receive tax free income in an SMSF. Which has nothing to do with franking credits, it is a separate issue altogether.

He also said the shareholder “pays $0 in income tax”. Well quite correctly, if the income was earned in a pension phase SMSF, then no tax is due and the franking credit amount of $28,700 withheld, is returned in full. But here’s the rub. Under the Labor franking credits policy, the whole $28,700 would be lost to the shareholder. An incredible 30% loss of gross income.

And in the situation where the dividend income is earned outside of super, the shareholder does pay income tax. $23,900 in fact. And she receives $4,800 from the ATO for an overpayment of tax at the time the dividend was paid. Of course the $4,800 would not be returned to the shareholder under Labor's policy, a loss of 5% of her gross income. Less than the SMSF loss, because a large portion of the franking credits are absorbed by the tax liability.

It is quite apparent that the difference between what Bowen claims to occur, and what actually happens in reality, could not be more stark. He is being disingenuous, targeting the financially unaware. And this is exactly the problem with the Labor Party franking credits policy. It is confusing to the electorate, and is therefore a lever for the manipulation of public sentiment.

June 14, 2019

A point that seems to be overlooked in all the franking credit discussions regarding Self Funded retirees is that a self funded retiree non pensioner couple are saving the Government $36,000 a year by not paying them a pension. this amount is even more when you consider the concessions a pensioner gets like the PBS etc.

June 13, 2019

If people want to "hit" up wealthy people with large SMSF balances or big Defined Funds for ex-public servants then an alternative is to drop the $1.6m per person down further. This is linked to $100,000 p.a. in income which is pretty darn comfortable for a single and $200,000 for a couple, very cosy. Perhaps $80,000 p.a. at $1.28m tax-free pension phase is a fairer number to ensure you actually do target the supposed targets ... Big SMSF, rather than hitting up all sorts of people on much much lower balances.

Warren Bird
June 14, 2019

I've said since day 1 of me being involved in this debate that there's scope for a discussion about the zero tax rate for pension phase. I've noted that the $1.6 million cap on fund size is a step in that direction, albeit an imperfect one.

The imperfect nature of it is even more stark now that cash rates have been reduced to 1.25% and seem headed lower, flowing on to TD rates and the yields that can be paid by income funds.

If a $1.6 mn fund is invested in TD's at 2%, that generates the princely amount of $32,000 a year. This is a far cry from the $100k that Lisaaaaa has used in her comment. To get that much, the income return would have to by 6.25%, requiring a portfolio that's fully invested in franked shares, which creates volatility of capital to a degree that most investors in that situation would be trying to avoid.

Even a balanced investment of $1.6 mn in the current climate might only generate the 4% withdrawal rate in income, and that's only $64,000 a year, well below average weekly earnings so - as I've also said many times before - not making someone "rich".

If we were going to change the tax rates applying to super fund earnings in pension phase, it would be better to make it look more like the personal income tax system already does. Make it progressive based on the income earned, not linked to some pre-determined notion of how much capital makes someone 'rich'. Scrap the $1.6 mn cap altogether and implement something like the following tax scale to apply to earnings in a fund that's in pension mode:

Income of up to AWOTE (currently $83k) taxed at zero
Income from $83k to $150k taxed at 5%
Income $150k - 250k taxed at 10%
Above $250k taxed at the 15% that applies to all super fund earnings now
Index all of these to AWOTE growth rate.

(I've not done any detailed analysis on these numbers - they're for an indication of how I think the discussion should proceed, rather than the levels and tax rates that I recommend.)

This would reduce the cost of franking credit refunds to the extent that there are actually retirees earning more than AWOTE amounts of income in their funds, but do it in a way that leaves the integrity of the imputation system alone.

And I remind people that we have to make sure that withdrawals of capital are not taxed. (Some folk who keep insisting that the system is a rort still seem not to appreciate this and think that all payments to a self-funded retiree should be taxed.) But capital has been taxed already, through the infamous compromise with the original idea of super which was to have contributions tax free, then tax withdrawals as income.

The easiest way to do this is to tax earnings within the fund according to the progressive scale, but make all withdrawals tax free.

And to finish, I have to say - yet again - to Phil Carman that his final comment is what is false. The imputation system is by definition a means of treating the earnings of a company as earnings in the hands of the shareholder. This applies across the spectrum, to shareholders whose marginal rate is 45% (plus medicare) as well as those on all other lower tax brackets, including zero. It results in all income, whether from your own business or from business income earned through a shareholding, being treated the same way for taxation purposes. And it means that if you are in the zero tax bracket, you are entitled to a refund of the tax paid on your behalf by the company.

To disagree with this is to argue that the whole imputation system should be discarded. Wonder what would happen to the cost of capital for Australian companies then, when perhaps half the shareholders dump their shares because of the inequitable treatment of their income by the ATO?

June 14, 2019

Question to all: Is the $1.6M threshold indexed each year? Will be worth a lot less 20 years from now..

Pat Connelan
June 13, 2019

Oh, for goodness sake, Cuffelinks. Anyone would think this website was a propaganda arm of the self-managed super fund industry, where people with $3m nest eggs and multi-million dollar homes whinge about not getting a refund because they have no taxabale income.

The fact is the current policy is unfair, unsustainable and a sop to the already rich. Public schools are under-funded, while fatcat whingeing baby boomer retirees using the public subsidy that is superannuation as an estate planning tool.

Draw it down folks. You have plenty of money. And to hell with all your sophistry from your tax experts like the gentleman above.

The sooner this generation pops its clogs, the better for our kids as they struggle under huge HECS debts and are priced out of the property market.

Bring on the generational war.

SMSF Trustee
June 13, 2019

Actually Pat Connelan, Cuffelinks is a website for sensible discussion and debate of issues by intelligent and informed practitioners.

Everyone of your emotional claims has been thoroughly discussed in many articles and comments, and demonstrated to be just that, an emotional claim not based in fact.

It's also an open forum that will even allow someone to make an emotional rant, so if a lot of folk like me who have an SMSF make comments, that doesn't mean that cuffelinks is advocating for me. It means I'm advocating for me.

Your comment got published. Does that make Cuffelinks a propaganda machine for emotional ranters?

If you think you're engaging in a generational war, you'll need better ammunition than you've just fired in that salvo.

David Wilson
June 13, 2019

Well said Pat. I completely agree. Through the 'franking debate' of the past 12 months retirees have revealed themselves to be a very self interested (selfish?) part of the Australian population. The current arrangement whereby imputation credits are refunded to nil taxpayers is completely unsustainable (and they know it).

HECS debts and a stratospherically priced property market are the hurdles our kids have to jump. But as long as the retirees are looked after everything is OK. Right?

So much for 'leadership' being shown by the older generation. They have collectively revealed themselves to be a bunch of selfish whingers!

William Jones
June 13, 2019

Hi Pat, you sound like an apologist for the Grattan Institute, or the Chris Bowen/Wayne Swan school of propaganda.

I am not in possession of a $3m nest egg, nor a multi-million dollar home, and I resent governments of all persuasions wishing to use my modest super to prop up their failure to control expenditure, much of which is simple vote buying.

The public schools are not underfunded, compared to practically any other first world country, and increasing funding in real terms seems to do little to improve standards.

I'm sorry if some of my immediate descendants did not vote for your party. Good luck with your intergenerational war.

June 16, 2019

"whinge about not getting a refund because they have no taxabale income":

If they did not receive a refund then they would have been taxed - 30% minimum on grossed up dividends from a large company - even if they are nil tax rate or tax exempt.

The absurdity of the Bowen scheme was crystal clear for a shareholding individual with an income less than the "tax-free threshold" of $18,200 - 30% tax on gross dividends for them - and they have (nil tax rate) "taxabale income".

June 13, 2019

Hi Graham Hand,
When my wife was working in the Public Hospital system she was able to get a pretax credit card and also had pretax payments made into her mortgage. These reduced her taxable income. This largess did not apply to Private Hospital nurses. I don’t know if the system still exists.

Graham Hand
June 13, 2019

Hi Doug, OK, but someone must pay the tax. An employer or employee cannot simply say, "Let's pay my credit card and mortgage in pre-tax dollars". Australian tax law does not allow a tax deduction for mortgage and credit card payments.

June 14, 2019

It must be some sort of salary sacrifice/fringe benefits package, as public hospitals and charities are exempt from the fringe benefits tax.

June 13, 2019

The nurse can generally salary package a large amount of her salary and get pre- tax income to pay off a mortgage,car or even her credit car payments.So her actual tax paid is probably less than half what Mr Bowen quoted.She can also salary sacrifice into superannuation.I have yet to see a true and correct comparison of this situation.Certainly Mr Bowen had no idea of what he was spouting off about.

Graham Hand
June 13, 2019

Graham (good to see you spell the name correctly), please explain how anyone can pay off a mortgage, car or credit card payment with pre-tax salary?

June 13, 2019

Your not-for-profit organisation may be exempt from FBT if it is a:

registered public benevolent institution (other than hospitals) endorsed by the ATO
registered health promotion charity endorsed by the ATO
public or non-profit hospital
public ambulance service.

If your organisation is eligible for FBT exemption, benefits provided are exempt from FBT if the total grossed-up value of certain benefits (which are benefits that are not otherwise exempt) provided for each employee during the FBT year is equal to, or less than, the capping threshold. If the total grossed-up value of fringe benefits provided to any employee is more than the capping threshold, your organisation will need to report the details and pay FBT on the excess.
Public hospital $9,010 ($17,000 grossed up) and employer does not pick up the FBT bill.

June 13, 2019

Hello Graham. Salary packaging is available for people working for Not for Profits ( NFP's). They are not subject to Fringe Benefits Tax (FBT) . The ATO allows employees in places like hospitals to package up to $9,010 pa ,basically for any private purpose. Can be into your mortgage,car payment or just your credit card.Ostensibly this was to allow NFP's to give their employees some benefits to compete with private employers.
So guess how many nurses do not salary package??.
Salary sacrifice is also allowed into superannuation.
Now work out a comparison.Hope this helps,shows how complicated these matters are.

Graham Hand
June 14, 2019

OK, thanks, Graham, but sounds like Geoff Walker's article should be recalculated in favour of the nurse, making Chris Bowen's comparison even worse.

Michael Moran
June 13, 2019


The other Graham is correct. The Nurse can get considerable fringe benefits taken out of her gross salary if she works in the Govt sector...simply because the public health sector is exempt fro FBT.

June 14, 2019

These people are correct graham hand, fbt free for these institutions, no one is paying the tax. In theory therefore the salary should be grossed up to get the comparison with other incomes right. I'm not saying they shouldn't be paid more.

June 13, 2019

Thanks Geoff, how about running the numbers on a senior Labor frontbencher (Bowen's) earnings of $259,000 a year (+ Allowances + 15.4% Super +++++) compared to the nurse.

June 14, 2019

Agreed RJM

Lloyd Taylor
June 13, 2019

Looked at another way - here is a letter that I wrote to the editor of a prominent financial paper who in his wisdom chose not to publish it. But the conclusion is the same!

QUOTE (Letter dated 15 April 2019)
In the article “Two class tax system can’t go on’ (AFR Apr 15, 2019 by Phillip Coorey) the Labor shadow treasurer Chris Bowen claims quite falsely that “a nurse who earned $67,000 a year paid $13,000 tax whereas a shareholder in retirement phase earning $67,000 a year and paying no tax would get a cheque from the government for $27,000 as well.”

At best his statement illustrates Mr. Bowen’s lack of understanding of the tax system, at worst it is an attempt to deceive the electorate. The retiree shareholder with a taxable income of $67,000 receives a $46,900 cash dividend, plus franking credit of $20,100 that is added to the cash dividend for the purposes of calculating total taxable income. With the loss of a franking credit refund at the end of the tax year, as proposed by Mr. Bowen, the retiree shareholder is effectively taxed $20,100 on his/her income of $67,000, an effective tax rate of 30%. This exceeds by a considerable margin the effective tax rate of 19.4% on the nurse’s income.

Labor under Mr. Bowen intends to create a grossly inequitable “two class tax system” to the disadvantage of those elderly who are solely dependent on earnings from their savings and investments. This comes at a time when the self-funded retiree has undergone unprecedented financial repression through the action of the Reserve Bank driving down interest rates for an extended period to the lowest levels in Australia’s history. This has left the self-funded retiree little option but to seek income from the investment of savings in dividend paying shares, at far higher capital risk than bank deposits on which retirees have historically relied.

In his statement Mr. Bowen has demonstrated a completely flawed understanding of the income tax system.

Daryl La' Brooy
June 13, 2019

Now that Chris Bowen has more time on his hands, this analysis should be sent to him for comment. It's only fair that he has a chance to respond?

Philip Carman
June 13, 2019

Michael, I challenge YOU to explain what you've just agreed is a "good summary". It is impenetrable and even the first paragraph of "the detail required" referred to the retireee as having various taxes already taken from the super fund...but what were they and how much? In pension phase there is none taken.
And I'm an adviser who has clients who would have been affected - as I would have been, so I really want to know the truth. So, I don't want those with bias doing the mansplaining. I want someone who can actually show in clear terms how the untaxed super fund is not far better off. Here's the key issue: franked shares are NOT owned by the individual; they are owned by another taxa entity, namely a super fund of which the retiree is trustee (one step removed) or designated director of a trustee company (two steps removed) and we all know that companies are NOT the individual (that's why we use companies - to limit our exposure/responsibility) so let's not try that line that "my shares have been taxed for me and it's just a refund of tax I shouldn't pay" because that's completely false.

Geoff F
June 16, 2019

Re your comment "Here’s the key issue: franked shares are NOT owned by the individual; they are owned by ...".
As an adviser, you should know that the franking credit policy had potential consequences for Australian shares:
1. OWNED BY INDIVIDUALS outside super
2. held within super (in SMSFs and industry and retail and corporate super funds, albeit with far greater consequences for SMSFs bcos of their membership being limited to 4 or less people)

So, your "key issue" is factually incorrect, and as a self-admitted "adviser", you should know better.

Christopher O'Neill
June 16, 2019

Just remember that shareholders own their company and exercise their ownership through the mechanism of resolutions.

i.e. they can do anything that an owner is legally entitled to do as long as it's done using a resolution.

George Gilchrist
June 13, 2019

Apart from tax considerations, what about the assets needed to generate an income of $67000 in retirement, especially with cash returns ever diminishing?
I Emailed to three Labour candidates, including Shorten, and of course never got a reply.

Philip Carman
June 13, 2019

I suspect the Labor politicians would have muttered "exactly!" as they discarded your mail... To get $67,000pa in income from shares you'd need to have at least about $1.6million invested 100% in shares, but more likely about $2.5million invested about 2/3 in shares. Why would they be worried about an investor with between $1.6m and $2.5million in retirement savings, plus all their other assets? They wouldn't. Their job is to look after the interests of the nurse who earns bugger-all and probably has less than $200,000 in super. We all need to take a step back from self-interest (and for advisers, like myself, from the interests of our clients) and ask "what's in the best interest of the broader public and the nation?" A fairer tax system that distributes wealth more widely, or having a wealthy nation where about 20% are very wealthy; 60% are middle class and about 20% live below the poverty line?

June 13, 2019

Agree, and no point collecting 30% tax on company earnings then just handing it right back from the Federal Budget. We all complain about companies paying their "fair share" and yet if it doesn't stay in taxpayer hands to spend on hospitals etc .... what was the point of collecting it ....

June 14, 2019

Your own numbers are way out Philip.
My wife and I have a SMSF of &lt;$1.6m, currently invested 80% in ASX shares, yielding $106k (or ~6.5%) in gross dividends for FY19.
It&#039;s not that hard!

Warren Bird
June 14, 2019

Lisaaaa, the imputation system does exactly that across the whole spectrum. It's purpose is to render the company tax system redundant so that all earnings - whether privately obtained or through a public company - are taxed in the hands of the individual shareholder. It collects the 30% from companies, then gives it back to domestic shareholders ("imputes" it to them), who then pay tax on it at their rate. For many shareholders this is higher than 30%, for some it's a bit less and for some it's 30% less.

In this way companies do pay their 'fair share' - whatever the average tax rate of individuals is the tax rate paid on company earnings, with a 30% rate applied to foreign shareholders.

That's why Paul Keating wrote an article that appeared in Cuffelinks a couple of years ago about how the debate about company tax was really only a debate about how much to tax foreign shareholders. He said that reducing the company tax rate would only be a tax cut for foreigners and that local shareholders would still pay tax on company earnings at their tax rate.

Commentators on this issue really do need to get their heads around this. All company taxes paid out of the earnings distributed to local shareholders are paid back by the government to those shareholders, then taxed as income to the shareholder. All of it. Not just the bit paid to self-funded retirees that the ALP was targeting, but all of it. If the company tax rate was dropped to zero, with a 30% withholding tax applied to retained earnings and dividends paid to foreigners, the impact on the budget would be zero.

You asked, 'what's the point in collecting it?' The point is that it serves to collect the tax that would need to be paid by foreign shareholders. Collecting 30% on all earnings, then repaying domestic shareholders via imputation, is an administratively simple way of achieving the same end financial outcome as having a zero company tax rate and a withholding tax.

The issue that should have been what the debate was all about in the first place is this: If there are too many people on too high an income paying zero tax because of the current pension phase tax rate, then address that issue. (I wrote about this in another comment earlier.) But leave imputation alone - it's one of the best tax policy initiatives ever implemented. It's clear, it's fair, it's administratively straightforward and effective.

June 13, 2019

Thanks Geoff, a good summary, I knew Bowen was wrong but didn't realise he was THAT much wrong! And this guy wanted to be Treasurer, I think Australia has dodged a bullet there! This also highlights a problem with today's media - they don't question so-called "facts" such as Bowen's claim. I assume that Leigh Sales just accepted his analysis and moved on (not that I would have expected her to do the sums on the spot!). I encourage you to pass this analysis onto the ABC's Fact Check people so that it gets more exposure.


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