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A fair go in favour of Labor’s franking policy


Labor's campaign slogan is 'A fair go for Australia', so let's have a fair go on franking. Some readers are disappointed that Cuffelinks has published many articles that are critical of Labor’s franking credits proposal, but we have not received one article making an expert case for Labor's policy.

Note also that many articles have suggested alternative strategies if the policy is legislated, but the articles have not been criticising the policy.

Cuffelinks encourages comments from all perspectives, provided they are (fairly) respectful and constructive. What follows is an edited collection of comments made on our website in favour of Labor's policy, and the article to which the comment relates.

Selection of edited comments

Do franking credits justify SMSF bias to Aussie shares?

Chris, May 2, 2019

I know I’m in the minority here but how can investors seriously think that getting a cash refund is acceptable? If, as it’s being reported, people have “saved” for their retirement then how/why are they relying on the government to subsidise their retirement with franking credit refunds?

A segment on the 7.30 report last night featured a fellow in WA who retired several years ago with $500k in his SMSF. While his wife is still working, he’s upset that he’ll lose his refund. 1, I don’t know why anyone would think $500k is enough to retire on, 2 legislative risk applies to businesses as well as investments.

Maybe a little overweight in Aussie shares!

Furthermore, if one has saved for retirement, when is one expected to start selling down their investments to fund their lives? It seems like everyone interviewed wishes only to live on the income stream and not the capital. Since when was superannuation supposed to be an inheritance vault for the kids?

PeterT, May 3, 2019

The nonsensical situation where the government (which again, is almost alone in the world today, in doing this) imputes the corporate earnings of its BHPs, CBAs, Telstras, etc. to a demographic of shareholders who sit outside the taxation regime. And in so doing, the government implicitly elects to pay for roads and schools and hospitals, etc. without taking a clip from those corporate earnings. That, I’m afraid, is pure nonsense.

Imagine, for a minute – if you have never actually done this before – sitting down and trying to explain this bizarre practice to someone in another country. With a straight face. And set your stopwatch to see how long it is before the word “Greece” is mentioned…

You can acknowledge the nonsense, and the necessity for the status quo to change, but disagree on precisely how; fair enough. Numerous Cuffelinks readers have pointed out that the zero rate of tax paid by pension-phase superannuants is really what should be put under the microscope. My own view is that imputation is the issue, and that it makes no sense to impute the earnings of a corporate entity to an individual shareholder when virtually no other property or practice of that entity is similarly imputed. Or there is the Keating view, which Labor proposes to re-implement, where you tax every single dollar of corporate earnings just once, at a rate equal to the higher of the corporate tax rate and the shareholder’s marginal tax rate.

If you take the view that the status quo here must change, that the nonsense must end – and most, even if not all, do – then under any of the above three avenues of redress, (1) more tax is going to be collected AND retained from corporate earnings, and (2) superannuants, as well as other low-tax-rate shareholders, are going to have less money in their pocket. That’s going to sting those individuals, for sure, no question, although the amount of the sting will vary depending on how you move the needle and on which dial. Any change to the status quo is going to have consequences, positive or negative, for everyone. If you are someone for whom the change has negative consequences (and I personally am squarely in this camp, but luckily my world view extends beyond the end of my own nose) you can console yourself, perhaps, with the view that in a rational universe, the money you will lose is money you really should never have been given, and are really very lucky (in a Greek way) to have received, over the past two decades, since Howard/Costello made the changes.

Steps SMSFs may take to beat Labor’s franking

Darrell Campbell, April 17, 2019 at 10:15 PM

When will the franking credit (SMSF) whingers acknowledge that they are a group of well-off people who are not “battlers who have struggled to save”. They have done well out of Govt Concessions, and who are receiving excess WELFARE franking credits. It is not rocket science…

Imputation means no double tax on dividends. You will still get this under Labors policy. This is what Imputation was meant to do.

This is all on the basis that the Govt gets 30% of company tax on profits, and shareholders get 70%. And the SMSF whingers want part of the 30% as well.

And even $10,000 in franking credits, means $600,000 in shares, and therefore probably $1m in SMSF. And we are supposed to shed tears for them??

Comment on franking and ‘direct investment’

Ian Arthur, April 17, 2019 at 4:48 PM

It is sad to see how few people seem to care about increased equality and fairness in Australia and that relatively affluent people are fixated getting money back on tax they haven’t paid. Personally I would like to see dental treatment added to the Medicare system. pre school made free as it is in much of Northern Europe. Our school system would be fairer if private schooling was not subsidised by the government, our health care system made more equitable if the government stopped subsidising private health. Government services require funding and removing much middle class welfare would make our country more equal and a better place to live.

Franking: what’s in the industry fund tax pool?

Neil Parcel, March 28, 2019 at 5:09 PM

So you support not taxing a significant proportion of company profits. Surely not paying any tax is privilege enough for retirees. But then to put your hand in the pocket of other taxpayers and demand that the government should also give you the tax paid by the company is simply over the top. It is a rort that must be stopped.

If a retiree needs welfare support then do it via the welfare system. This is a loophole the largely benefits wealthy people and short-changes other taxpayers.

Peter C, March 31, 2019 at 6:04 PM

There is a myth going around that SMSF’s are treated differently to public offer funds. They are not and SMSF’s are not discriminated against. If a SMSF has 2 people in pension phase and 2 in accumulation phase, and their asset allocation is balanced the SMSF will utilise their imputation because they will reduce the income tax. Conversely if a retail, industry or corporate fund has the majority of their members in pension phase (some smaller ones do), and their investments are skewed to Aust stocks paying fully franked dividends, then they are in danger of losing some of their franking credits. What this shows is that all funds are treated the same and the proposals do not discriminate in favour or against any superannuation sector. This myth is busted.

Personally, I do not believe in negative income tax and the current law allows for negative income tax for retirees over 60. It’s time this was changed and the ALP proposal is a good first step.

Your opinions on Labor’s franking proposal

David Wilson, March 7, 2019 at 3:23 PM

As an imminent retiree the proposed franking arrangements, if implemented, will cost me some income. However, on balance I believe Labor’s franking proposal is beneficial to the Australian population overall and I am willing to support it. We are simply not paying enough tax to pay for our necessary Gov’t services (medical, education etc).

SMSF fund members who are concerned about ‘losing’ franking credits should move to a retail or industry fund that facilitates them receiving full value.

A response from Chris Bowen on franking

Philip Carman, March 7, 2019 at 3:12 PM

Just shift your shares to a good platform super fund which will collect the cash refund for you. It beggars belief that you can’t work this out and yet still cling to being trustees of your SMSF – really?

Most who have an SMSF in pension mode will need to exit sooner rather than later due to costs, inconvenience and compliance issues, anyway, so this is actually an opportunity to test the better, cheaper and more convenient waters ahead of time. Accountants won’t like it, but life is full of change so they’ll have to get over it, just as everyone else does. When the facts change sensible change their tack. Others cling to their beliefs and cry “no fair”…

By all means leave your property and bonds in the SMSF, but get your shares out, try the alternative and then make the changes you will require anyway over next few years.

On franking, all public funds are not the same

David, February 28, 2019 at 10:40 AM

There is no discrimination as the democracy principles are intact. A policy has been tabled prior to the election. The Australian public will vote, and a party will be elected to govern. The polls oscillating around 54-46 on a 2PP vote suggest this issue is of minor concern and further proof that the vested interest and lobby groups merely represent a minority view.

Peter Simpson, February 28, 2019 at 5:52 PM

These comments and many others I have read highlight the emotions arising when a loss is experienced. I am one who will be impacted by this but recognise that the current policy is unsustainable.

Good financial advice would see the impact minimised through diversification. What returns have been missed by over focusing on tax refunds?

I agree that the proposed changes along with others such as the $1.6m cap, reduced concessional and non concessional contributions have all impacted retirement planning. Constant change reduces confidence in long term planning and people providing for their retirement.

I would not seek to diminish the pain experienced by those affected but there is also a hysteria that seems to overstate the impact. More facts and considered planning options need to be reported and most large funds will have no problems as they have large accumulation FUM.

When I donate to charity I cannot claim a deduction against NIL tax and get a refund.

Franking credits made easy

Tony, February 14, 2019 at 7:03 PM

I’m afraid this comment falls into the self interest category. Corporate tax is not a down payment on the shareholder’s tax. It is a separate and important source of revenue to the country. It cannot be looked at in isolation. And as proof just look at the amount of SMSFs invested into Australian shares just to receive the refund, most of which were set up to take advantage of this loophole. The tax free payments from super means most retirees do not pay tax and receive this refund. Another Costello folly.

It is a massive distortion of the tax system. In the extreme there would be no corporate tax paid, leaving a massive hole in the budget.

Paul, February 15, 2019 at 8:23 AM

The refund of imputation credits was about $500 million in 07-08. It was about $5 billion last year. If this Labor change does not happen and we continue down this path of some equities yielding 8-10% for retirees only, do we think this could lead to some pretty heavy imbalances in the market??not to mention the portfolios of retirees?

Might there be a problem if we have a GFC II event and the market drops 50% again?? What will the retirees who have massively over-invested in artificially high yielding equities do when their portfolio halves?

Assessing Labor franking policy options

Jimmy, February 21, 2019 at 1:43 PM

Imputation was designed to stop dividends being taxed twice, once in the hands of the company & once in the hands of the investor. If the investor is paying no tax and also gets a refund of the tax paid by the company then the base from which tax is to be generated gets smaller & smaller as more boomers move into ‘pension’ phase.

If retirees are complaining that the health care system is failing, that their kids are being swamped by taxes & no benefits, that their grandkids arent getting proper funding in schools then they need to look at issues like this & recognise they are part of the problem.

6 stark superannuation policy differences

Adam Shultz, January 29, 2019 at 11:02 AM

Labor have released their policies long before an election and regardless of whether you agree with particular policies or not, it is to be commended that they are upfront with their agenda and priorities that they will pursue in Government.

As for the refunding of dividend imputation credits I believe Labor have been very clear that they see the current situation as unsustainable in the future. Bowen has been quoted as stating that, “In 2014-15, $5.9 billion was spend on refunding dividend imputation credits. In the same year the commonwealth government spent less than this on public schools at $5.2 billion.”

Bowen also states that, “Industry funds are treated the same way as retail and bank funds. And all these funds pay tax. Allowing them to use franking to offset that tax is a fundamental principle of avoiding double taxation. In fact, it is tax refunds to non-taxpaying SMSFs and individuals which is the anomaly in our tax system. No other element of our personal income tax system involves refundable credits. None.”

Labor franking policy will change behaviour

Pat Connelan, January 24, 2019 at 10:15 AM

The self-interested industry bleating over this issue is a wonder to behold. The fact is, as Professor Ken Davis is quoted as saying in The Australian today, dividend imputation was not intended to lead to zero taxation of corporate income which occurs when dividends are paid to investors on zero marginal tax rates and rebates paid. The other issue, as the article shows, is it is distorting older Australians’ asset allocation leading them to hold concentrated portfolios and seeking to game dividend payments by breaching the 45-day rule. The tail is wagging the dog, the system is unaffordable and it is creating massive distortions in the financial system. Why doesn’t Cuffelinks represent an alternative view on this issue instead of constantly singing from the hymn book of industry rent-seekers??

Cuffelinks’ Facebook debate on Labor franking

Mick Peach, January 3, 2019 at 9:45 PM

If you own part of a company, you pay company tax – end of story. If those earnings are included with other income for tax purposes and that results in you paying more than the company rate for that portion then you should get the difference back, but not otherwise.

Can’t recall anyone complaining about the lack of payment of imputation credits prior to the change. Not a peep.

I remember when pension income was first exempted from paying any tax, I thought wow this is great, never thought I’d see that happen – but when they went further with the payment of credits I nearly fell off my chair thinking this is too good to be true. It is, get used to it.

Invest in something else besides banks, utilities, reits etc. you’ll be doing the economy a favour.

Taxpayers with lowest tax rate are hardest hit

Philip Carman, November 18, 2018 at 12:25 PM

So many here seem to have missed a few important points.

The first issue is that companies in which you own shares are NOT YOU and you’ve made a deliberate choice to invest via a company usually because the whole point of companies is to limit liabilities – or in other words, to limit responsibility. So how you think that you can/should do that as well as gain all the benefits of direct ownership is perhaps a rather interesting example of deluded self-interest. The company pays the tax and Paul Keating (just ask him, he’ll tell) saw that there was a potential for double taxation AND an opportunity to bring Mums and Dads into a broader share ownership culture (just ask him – he’ll tell you) so he led the world in “tax reform”…but that was then cynically abused a decade later, when…

The Howard/Costello trick was used as a vote winner at a time when that government’s popularity was fading and it worked a treat. Always back the horse in the race named “Self-Interest” – you know it will be trying! Who said that?

Committee Chair call to Cuffelinks readers

Fred Woollard, November 8, 2018 at 1:43 PM

I also feel strongly about this. The submission I would like to make is below. The biased website refused to lodge my submission unless I agreed to support their petition.

Attention: Tim Wilson MP (Chair) & Committee members,

As a fund manager and investor, I support the abolition of cash refunds of fully franked dividends.

There are much better uses of government money than giving money to investors. Schools and hospitals are obvious examples.

It is not hard to rebalance one’s portfolio away from shares if this causes a problem. A competent stockbroker should be able to advise on this.

The impact of Labor’s tax change has been thought through. It should be supported.

Dean, November 9, 2018 at 12:44 PM

The tax benefits of franking credits have encouraged many SMSF trustees to invest in highly concentrated portfolios of Australian shares. This may be great when things go well in that narrow segment of the investable universe, but it is quite risky.

Union super funds are far more diversified and as a result have other sources of income against which franking credits can be offset. “Identical portfolios” is a moot point because their portfolios are quite different.

While I don’t accept that Labor’s proposal is logically consistent, if it encourages SMSF trustees to adjust their asset allocation away from an intense concentration on Australian shares it’s ultimately a good outcome.

Labor’s franking policy is a ticking bomb for all super funds

Dane, October 4, 2018 at 5:15 PM

The whole point of the original dividend imputation system introduced by Keating was to remove ‘double taxation’ so that taxpayers wouldn’t pay tax at their MTR in addition to the tax already paid by the company at 30%. Then Costello came along and changed the system in search of the grey vote to allow excess franking credits to be refunded to 0% taxpayers at a substantial cost to the budget. ($4.6bn 2012-13). These ‘çashbacks’ were not part original design of the policy but were funded by a spike in national income during the mining boom years. Now this is over it has left us with a large permanent structural budget costs (see above). Dividend imputation is unusual in itself in that only 4 countries on earth do it. But none go and step further like we do with excess franking credits..

At the end of the day it about what is fair and sustainable. Costello should never have changed the dividend imputation rules in the first place, and should only have permitted investors to offset franking credits against tax that they have paid. This was the initial rationale behind dividend imputation – i.e. that tax gets paid on company profits, but not twice over when paid out as dividends.

Shadow Treasurer Chris Bowen responds on franking policy

Pat Connelan, June 7, 2018 at 2:53 PM

To the battler with the $1 million super account, $40K in dividends a year and complaining about not getting a ‘refund’ for unused franking credits, I suggest he talks to a 25-year-old university graduate looking for a job and trying to survive on Newstart. Honestly, the revolution can’t come soon enough for the entitled whingers on this website.

Pat Connelan, June 7, 2018 at 6:40 PM

The truth is the refund policy was an expensive, unsustainable and fiscally irresponsible in the first place. It was a giveaway by Howard and Costello when they had money coming out of their ears to pay homage to the ‘self-funded’ retiree constituency of pigs at the trough. Now these entitled blowhards are squealing because the Labor Party is trying to reintroduce some equity to the country, while reining in a cost that escalating to tens of billions of dollars a year. And these people complaining have ample savings. They are just too greedy to actually spend them down and want to use their fat superannuation pile as an estate planning device. Meanwhile, our kids’ generation are having to shoulder every single risk without any help from the government. They carry student debt, are shut out of the housing market (because ‘self-funded’ retirees are negatively geared up into multiple ‘investment properties) and will inevitably face a future with none of the unfunded middle class welfare that has spoiled our generation of boomers.

Labor, let’s face the facts on fairness, women and franking

Tony, May 31, 2018 at 6:59 PM

Noel I think you missed the main point. Company tax is paid by companies. Dividend imputation was designed to ensure that the company tax paid on profits was not double taxed in the hands of shareholders receiving dividends To achieve this, imputation credits were introduced, meaning that only those who paid more than 30% income tax were taxed on their dividends.

The existing situation whereby imputation credits are refunded means that company tax is diluted. That was never the intention of dividend imputation.

The loophole has been exploited by the well off, mainly through SMSFs and non working spouses. It is unsustainable and inequitable.

Phil, June 4, 2018 at 11:12 AM

All Labour is proposing is changing the law as in their view more tax needs to be raised to fund deficits, repay ever increasing debt levels. So it’s what side you sit in terms of self interest or greater good I guess. But the argument gets complex as ever, we have people wanting Apple to pay more tax here as they pay none, but don’t want to give up their franking refunds. It might be a tenuous link but I find it interesting.

Copernicus, June 4, 2018 at 10:00 AM

While everyone quibbles over an exta 1.5% p.a. from franking credits, portfolios are being decimated by a slavish focus on investing purely for tax reasons, which has the average portfolio heavily overweight Banks + Telstra. This is not a prudent investment strategy. The consequences have been on show with large amounts of volatility in the capital component, which has wiped out any benefits from franking credits many times over. The excess refunds of franking credits appears to be distorted investor behaviour to their detriment.

C'mon people. Use this as an opportunity to do some homework and look beyond a market that represents less 2% of the world, dominated by sectors that are over-invested in the past..

Impact on pensions and super from loss of excess franking

Gen Y, March 15, 2018 at 11:20 AM

There’s no doubt in my mind this policy change is for the greater good. The vested interest groups (ie the Wealth Management industry) will cry poor but the 0% tax on pension income and drawings introduced as part of the final splurge by the Howard administration are simply sucking too much taxation revenue out of the system.

Secondly the high dividend payout rations encouraged by the generous imputation credit regime are also putting a handbrake on company investment in this country. Reducing the incentives for paying out 70% of profits of dividends will see this income re-invested, creating jobs and economic growth.

The risk to property prices is a real one, but that horse bolted 20 years ago. Why the current concern about rising property prices when everyone has turned a blind eye for so long.

Geoff, April 26, 2018 at 12:24 PM

I do not understand how some people get the idea that company tax is a tax paid on behalf of shareholders. It is not. Company tax is a tax levied on company profits under the company tax regime, simple as that. Keating’s original imputation system was designed purely to prevent the double taxing of the same “income” in the hands of shareholders, albeit that “income” is in a different form ie dividends rather than profits. It was never intended to provide refunds for shareholders.

For those thinking I have a biased view let me tell you I am a Liberal voter, a retired tax accountant and my SMSF receives tax refunds from unused franking credits. I just happen to think it is illogical for a Government to collect tax one year in the form of company tax and then pay some of that tax collected as a refund to some shareholders in a subsequent year when they themselves have not paid the tax! It becomes a form of welfare!

Franking: never mind the logic, let’s obfuscate

Philip, March 29, 2018 at 6:19 PM

There IS a BIG difference between an employee who has an employer pay tax on their behalf (at an estimated rate) and the employee later getting a refund when their tax rate is lower, and a shareholder and the refund of company tax paid at the standard rate. One gets tax back that’s owed to them by the ATO whereas the shareholder is a different entity to the company and is not entitled to any presumption as to what’s “owed”. AND the shareholder does not share any liability of the company (that’s what “limited liability” means and is why the company exists – to separate shareholders from the business and control of the company). So, they are about as alike as cows and seagulls (both are animals, but quite different) and can and should be treated differently. This proposal by Labor is long overdue and is a fairer treatment than the over-the-top generosity of the Howard/Costello nil tax on pensions and refund of company tax to (often wealthy) individuals who don’t pa tax on their income. The only mistake is removing the provision from Age Pensioners; it should simply have been capped at $1000pa max refund.


June 19, 2019


"The nonsensical situation where the government (which again, is almost alone in the world today, in doing this) imputes the corporate earnings of its BHPs, CBAs, Telstras, etc. to a demographic of shareholders who sit outside the taxation regime. And in so doing, the government implicitly elects to pay for roads and schools and hospitals, etc. without taking a clip from those corporate earnings. That, I’m afraid, is pure nonsense."

You miss the point entirely, Peter. Government imputes the corporate earnings of its BHPs, CBAs, Telstras etc to ALL Australian resident taxpayer shareholders. Not just to super funds, who, by the way, do NOT sit outside the taxation regime. In the interest of equity, if government allows one taxpayer to offset fully the value of franking credits against an otherwise fully payable tax bill, fairness dictates that those credits be refunded if no outstanding tax bill exists.

The point is, in the case of either franking tax offsets, or refunds, the government imputes the entire value of the corporate to the shareholder. In neither case does the government receive a "clip from those corporate earnings". As I said, you have missed this point.

In the interest of fairness, the denial of cash refunds to one group of shareholders demands the denial of tax offsets to the other. The old, tired counter argument that those that receive offsets do pay "some" tax is moot. It is the amount of tax that they do NOT pay, as a result of the allowance of the offset that is the issue. On a given parcel of shares, the value of the offset able to be claimed is exactly the same as the cash refund which would apply. In fact, the operation of the offset is identical to the shareholder receiving a cash refund, and then paying their tax bill in full.

If you take the view you describe as the "Keating view", that you tax every "single dollar of corporate earnings just once, at a rate equal to the higher of the corporate tax rate and the shareholder’s marginal tax rate.", then Labor's so called "pensioner's guarantee" fails this test. The current Labor policy provided exemtions for many, which means that under Labor's current proposal pensioners and others will receive cash refunds of excess franking credits which were never received under Keating. So Labor's policy is not a return to Keating at all.

In any case, the concept that income should be taxed at the higher of the marginal tax rate of the payer, or the receiver, is defective. Such a concept applied to wages, for example, would have many employees paying tax on their wages at the employers marginal rate. Absurd ? Not really, it is the same principle. Allowing government to by-pass the marginal tax rate it has set for the receiver, and instead apply the higher marginal tax rate of the payer.

Predictibly, such a policy produces unsound results. For example, a corporation with a tax rate of 30%, receiving a dividend of $7,000 cash with $3,000 attached franking credits would receive $7,000 net income from that dividend. An SMSF with members in "pension phase", receiving the same dividend would also receive only the same $7,000 net income.

If taxpayer's marginal tax rates are circumvented, as in the example above, why bother even having them?

Furthermore, if you really are trying to explain this to someone in another company, just equate the tax outcomes of interest income, with share dividend income.

If the income was the same $10,000 as above, but interest income, no tax would be paid by the payer prior to paying the receiver.

If the receiver was a SMSF with a 0% vtax rate, the fund would retain the entire $10,000 as net income and the government would receive NO TAX. To the payer, the interest payment is a tax deduction. The result is the payer paid $10,000, the receiver received $10,000 and the ATO received no tax.

Our imputation system, in its present form replicates this exactly.

The payer pays out $10,000 in total. The receiver receives $7,000 from the company plus a $3,000 refund from the ATO = $10,000, and the ATO receives no tax. The ATO did receive $3,000 but refunded it.

So you could simply explain that our system replicates exactly the tax outcomes that would apply for other types of income, taxed outside the imputation system.

May 15, 2019

As a tax-paying investor, and as a self funded retiree i have taken advantage of any legal tax minimization scheme available, from negative gearing, or installment warrants or franking credits, whatever. From 2002 when i retired, i took advantage of the franking credits cash 'refund' against zero taxable income. I recognized it was a rort. I don't understand why others do not see that it is a rort. When it is paid to persons with no taxable income it reduces government revenue by more than the corporate tax rate on dividends. That makes it also stupid policy.
The ins and outs of how the proposed new policy works are beside the point: The best solution is to to dump franking credits altogether and reduce corporate tax on retained earnings more than on dividends. That grows businesses and the economy.

May 16, 2019

"When it is paid to persons with no taxable income it reduces government revenue by more than the corporate tax rate on dividends.":

Persons with no taxable income would have no dividend income - as dividends, and franking credits, are taxable income.

Franking credits can not exceed the company tax paid -
. each $1 of company tax paid adds exactly $1 to the company franking credit account,
. each $1 franking credit assigned to a shareholder subtracts exactly $1 from the company franking credit account.

John Abernethy
May 13, 2019

All the views expressed - for and against franking cash rebates - fail to argue their case based on the desire to create a agreed outcome from a national retirement policy.

Because Australia does not have such a policy, recommended to and adopted by Parliament, to be managed for the current and future generations, then the retirement system will be subject to change over and over again. Is that logical and is that in the best interest of our society? I don’t think so.

Whether cash franking rebates is logical or fair cannot be decided by changes the rules in an adhoc way or by pushing changes through an election campaign.

I do not believe that there is a higher level of integrity or fairness created by the ALP putting this forward as a policy in an election with dozens of other unrelated proposals.

Australia urgently needs to create a retirement policy with the intended outcomes clearly defined so changes or upgrades are tested against the desired stated outcomes - agreed by Parliament.

Maybe retirement policy should be ingrained in our constitution so it cannot be changed on a political whim.

Frankly, I can passionately argue for and against the logic franking credits. I do not that the overwhelming majority of OECD countries do not have franking - that tells you something.

The problem is caused by the fact that Australia adopted a franking regime with very little understanding of the long term consequences of that policy. Every time we propose changes we again have very little understanding of the consequences.

It is clear to me that if the ALP manages in government to force through its proposed changes in a vacuum of a agreed national retirement policy then we are destined for more changes as government swings back to LNP.

An obvious change to be argued by the LNP will be this -that contributions tax cannot be offset (avoided) inside pooled funds or indeed SMSF by franking credits. It will be argued that contributions tax is levied to be paid and not avoided. It will be argued that that was the intention of Keating (it sounds good) and so we are going back the original design.

The problem being that it was a design which failled because there was no clearly articulated outcome embedded in it.

In my view we need a total redesign of our superannuation, retirement and pension system, so we have stable rules and we can worry about more significant issues which confront our society and our families.

May 14, 2019

Sadly, a rational total overhaul of our tax system and a national retirement policy will always be a bridge too far! One of the disadvantages of democracy and the rise of minority parties and independents.

The pool of superannuation money in the honey pot is and will be too tempting to cash strapped governments. The whole concept of superannuation is at risk because of this.

Why on earth would anyone contribute one iota extra to superannuation given the continued unfavourable legislative risk. The minuscule tax benefit is outweighed by the risk.

May 12, 2019

"There IS a BIG difference between an employee who has an employer pay tax on their behalf ... and a shareholder and the refund of company tax paid at the standard rate. One gets tax back that’s owed to them by the ATO whereas the shareholder is a different entity to the company and is not entitled to any presumption as to what’s “owed”.":

Both involve a payer which pays tax on money owed to a payee.

The wage income taxation equivalent of the Bowen Franking Scheme is a payroll tax of 30% on wages for those individuals with a taxable income below their taxable threshold (non-senior $21,595; senior $29,608).

Wage earners are not entitled to any presumption of no introduction of a payroll tax of 30%.

May 10, 2019

So apparently some people believe that it is fair that SMSF retirees are essentially taxed at 15% less than people earning over $180k.
These same people also believe it is fair that full franking credits are used (and there for exactly the same amount of taxes foregone) to pay for some random other person's taxes when the investment is made in a pooled set of assets in an industry fund.

It's exactly the same problem folks, the only difference is that an SMSF is legislatively prevented from having more members, and hence fewer people to disburse franking towards. Rebates for SMSFs are a natural consequence of this restrictive legislation and are no more unfair than using my franking credits from my investment choices to pay for someone else's taxes in an Industry Fund.

May 10, 2019

From my reading of all the reader comments on Cuffelinks over the past 12 months regarding dividend imputation and franking credits and Labor's proposed changes culminating with Mr Shorton's Q&A performance regarding franking credits on Monday night is that:

1/ The Labor Party uses emotive, divisive and incorrect terminology and language and misleading arguments to lie and misrepresent facts regarding Australia's current just and equitable franking policy. Labor's proposed policy will introduce major inequity into the taxation of individual's income in Australia, no matter what income level or source. Income should be taxed equitably and progressively at different rates as we currently have, and tax avoidance should be detected and punished.

2/ Labor is able to get away with this emotive and false propaganda to support their policy because the majority of adult Australians have limited financial assets/resources, do not own shares, pay no net personal tax (because of government rebates or benefits) and have no or limited understanding of how personal taxation works in Australia. It is not just an inter-generational thing. I see this "confronting proposition" of little knowledge evidenced by the number of people who comment to Cuffelinks emotively and/or with obviously little understanding or knowledge of superannuation, lifetime saving and investment, building self reliance as much as you can, imputation, franking credits and personal taxation policy principle.

3/ Too much emphasis is placed on the policy impact on SMSF, which will be substantial, but always allows the franking and taxation conversation to be clouded and confused by superannuation/trust taxation law which is not the same as personal taxation. Again this super/trust taxation is an area that is not well understood by most adults and misinformation and wording is easily manipulated by politicians who do not not want the public to correctly understand the policy proposal and detrimental consequences on individuals.

4/ Too few simple examples are provide that allow most people to understand the principle about of what Labor is proposing, again this clouds what is really being proposed:

Most people would understand that if franking/imputation was applied to interest payments from bank accounts, that out of each $1 of interest earned that you would only receive 70c deposited to your bank account. The other 30c is sent to the ATO and you are provided with an tax credit /franking credit of 30c to offset any personal income (from any source) tax liability. I guess most people would agree that if your tax liability - even if zero - was less that the amount of tax the bank sent to the ATO, then you would expect to get refunded your excess tax paid. Most people would not see it as "unfair/rort" or a "gift" from other taxpayers or the ATO.

4/ How can it be fair and equitable in Australia that pensioners (at a certain date when Labor is not even in power) can be promised to be refunded excess franking credits (tax paid on their income) when they often do not have a personal taxable income >$18,200, when a non pensioner or new pensioner (after the announcement date) will not able to be refunded excess franking credits (tax paid on their income) from the ATO when they also do not have a taxable income > $18,200. Currently there is equity and all people are treated equitably under the law regarding their personal income and how much tax they pay. Labor policy is proposing inequity dressed up as fairness. Is that fair?

5/ The fair thing to do if we as a country can no longer allow refund of excess tax paid (franking credits) to resident Australians is to come up with another option that is equitable to all super funds, trusts, individuals (pensioners or not), charities etc.

May 10, 2019

I had a quite regular and equitable exchange with Chris Bowen's Office via a Mr McCrudden, until I asked (for a second time), what tax obligation would a politician have on their superannuation payout? At this time I was told that the original document I received had answered all my questions - but it did not. From this outcome I firmly believe there is no tax obligation. From what I saw in the superannuation link, supplied by the Bowen Office, a parliamentarian's payout would be more than my income and franking credits combined.
Am I wrong to think this is a hypocritical, shouldn't those with greater incomes pay greater tax. I know that politicians are not the only group paying no tax on their superannuation - they include personal friends!
I proposed a 'fairer' and a more sustainable taxation scheme with 0% (pensioners), 5% (low income), 10% (high income) and 15% (the targeted rich) rather than the 30% from dollar one for everyone. This includes pensioners who receive their pension after 28/3/2018, and have franking credits from shares, if I have understood the proposal correctly.
I cannot understand why the presence of a pensioner in any fund, can influence the retention of franking credits for others in the fund. I sought information on the ATO requirements for retirees and was told that all are required to submit a document indicating their fund balance and an income so that minimum required pension is removed from the fund each year. So each individual can be treated separately.
I retired in July 2015 with all of the money I will ever have in my fund balance. I chose to invest in Australian shares as -
I knew something about Australian shares!
I wanted to receive dividends because I did not want to have to sell shares, when the market was down, losing money!
In truth I did not know about the franking credit return until I retired! I would add, this was not something I had any say in!
Since this IS all the money I have to live on AND I don't know how long I will live, I want to preserve as large a balance as I can for as long as I can! The larger my balance the more I must take as a pension!
Investing in housing was not a viable option in retirement - as I had no tax obligation, I could not claim any deductions; I did check with the ADF housing as this would give the best renter but found the fees much too high, without deductions!
I salary sacrificed for 12 years to obtain as much money as I could - my parents struggled on the pension and I was driven to avoid this for myself. As a sole parent I received no 'Government money' nor did I want it.
If I removed myself from my SMSF fund I would be $5000 to $7000 better off, with the tax-free threshold, lower tax rate and deductions - none of which I have access to now.
Is it fair to have so many exemptions for people in the same situation and having the same income to be treated so differently??

May 09, 2019

I seem to recall that Costello removed income tax from self funded pensions in 2000 to offset the introduction of the GST for those retirees .
Just as he introduced a 50% discount on capital gains tax to simplify the process of bringing to account inflation in the cost base of assets.
It's a shame that the history is forgotten so that sound measures at the time can now be repositioned as rort's or largess to serve a new political argument.

May 09, 2019

My objection all along is, and continues to be, that the policy simply makes no sense. It penalises a sub group of franked dividend recipients with low incomes, and of self-funded retirees sitting at the lower end of self sufficiency, while leaving their genuinely wealthy counterparts more or less untouched.

The only argument in favour of the Labor proposal that would seem to have a shred of reason to it, is the idea that the earnings of a company are completely divorced from the earnings of the part owning shareholders, and should be taxed at the 30 percent flat company tax rate irrespective of who they flow to.

Setting aside the numerous machinations that companies use to avoid paying this tax, that is not how those earnings are currently treated, and to portray this element of existing tax law as some kind of rort is poor form. Historically, Labor have been supportive of the current arrangements. They are certainly entitled to change their position, but not to paint it as something akin to a scam.

Bill and Chris could demonstrate that they really care about robust outcomes by getting another opinion on their proposed changes, and giving some thought to who is really being hurt by this very poorly conceived bit of policy. If they are sincere about addressing this issue in a manner which is fair to all and doesn't leave gaping holes for the wealthy to steer through, they will take a look at the appropriateness of the personal income tax rates paid by the various classes of franked dividend recipients.

Under Labor's plan, the multiple exempted groups continuing to receive refunds, which I understand to include the Labor supporting unions themselves, make a lie of the claim that the refunds are unaffordable, or constitute a "tidy little arrangement".

If Labor follow through with their idea that it is important for companies to pay tax on their earnings at the 30 percent company tax rate, then there is no possible excuse for giving the likes of charities, NFPs, churches, unions, and pensioners refunds. If Bill and Chris do get their way, these refunds really will constitute a "gift" from taxpayers. As a taxpayer myself, I would like to see some justification and accountability for that largesse.

May 09, 2019

How can FC be a GIFT?
I invest, I take the risk, Company pays the tax and deposit imputed credit with ATO. ATO calculates my Tax obligation and any surplus is paid back to me.
So where is the Gift? Was I GIFTED for past 19 Years not knowing. Clever or Confused?


May 09, 2019

Thank you Cuffelinks for republishing these 'for' comments. As I see it, readers who have left comments 'for' or 'against' (mostly 'against') on the franking credit issue, fall into two fairly defined camps. Camp #1: Those who stand to lose, either presently or in the future, the access to franking credits and see that the current system of refunding tax to non tax payers is an unsustainable distorting practice despite the fact that they (Camp#1) will lose the benefit as it currently stands. Camp #2: Those who stand to lose access to franking credits...........and just don't like it!

May 09, 2019

Or Camp #3: Those who see the proposal as planned to be an exceptionally flimsily designed and ineffective bit of policy which will actually serve to further entrench the very inequity it claims to address. At the same time increasing the complexity, and subsequent loopholes, inherent in already outrageously convoluted tax law!

May 09, 2019

The proposal to nullify tax refunds derived from a
franking credit surplus may enhance Bill Shorten's
credentials with anyone espousing " class warfare ",
but it has done nothing to allay concerns that the Labor agenda is disingenuous, devious, and discriminatory.
Shorten, together with treasury spokesman Chris Bowen
have targeted self funded retirees, especially anyone who utilises a smsf structure with punitive fiscal measures which amount to the imposition of a wealth
tax. Shorten then upped the ante by referring to this
measure as " fair go economics " but is undermined by
a simple statement of fact that tax refunds are NOT
taxpayer funded gratuities and will never be issued until
an assessed tax liability has been extinguished. This issue could have been clarified by ATO, but Shorten and Bowen have remained intransigent....
By any reasonable standard, Shorten and Bowen
demonstrate an alarming lack of fiscal expertise, coupled
with an abundance of refutable populist rhetoric. The
electorate would be wise to wise to question ALP competence to efficiently and effectively deal with complex fiscal issues. This stuff underpins the country's
future economic performance and ultimately our future
standard of living.........

May 09, 2019

For every share sold there is always a buyer. So if a lot of SMSF share holders move to other investments and sell their franked shares, these will inevitably be bought by others who are exempt from the policy or by those who can use them to offset their tax liability. If taken to the extreme then Labor will profit nothing by this policy except income stress for many retirees. As it is, I believe they will eventually gain very little of their boastful $5.4bn.

May 09, 2019

this is a push by labor to get more money into industry funds from which the unions and labor will get a slice... how cunning …. their own little annuity stream.

the tax was paid by the company - you as a shareholder have received income and have had tax paid on your dividend for you.... if when doing your tax you have paid too much tax then the excess is refunded

May 09, 2019

Ok let's for a moment say that the policy is fine, no cash refunds if you don't pay tax. If that is Labor's strong principle, which we keep hearing over and over again, why do they BREAK that principle and allow so many exemptions to the principle?

Go to and read for yourself - this policy only applies to individuals and super funds, no-one else. So it won't apply to tax exempt bodies like charities, nor to universities or employer associations or trade unions. (Nor pensioners nor pensioners in an SMSF on 20 March 2018).

So that is where the policy, if you accepted it, is so wrong to allow such bodies to be exempt. Once you break a principle, you break the strength of the argument and it falls in a heap. So much for Labor's principled view on this matter.

May 09, 2019

The exemptions still fit in with the overall principal because the crux of the policy is that refundable franking credits are unsustainable tax concessions to those who essentially do not need it and who have, in a chief measure, actually benefited from this largesse over the last two decades. The exemptions simply honour the view that tax-exempt bodies and pensioners should continue to receive these specific tax concessions. Whether or not you think these entities deserve concessional treatment is a separate argument all together but it certainly doesn't contradict the policy position. People need to remember that the policy is not an attack on the imputation system in general.

May 09, 2019

The exemption for tax exempt bodies and pensioners absolutely contradicts the policy position. If the Labor policy is introduced as proposed, those exempted groups will no longer be receiving a refund of excess tax paid above their tax rate (zero), which is what the refund system currently does.

As those exempted groups have a nil tax rate, they will actually be receiving a gift of the relevant amount directly from the taxpayer.

If company earnings are to be taxed at a base rate of the circa 30 percent company tax rate, it is unavoidable - there is no refund to be given because the exempted entity has incurred no real or imputed, tax liability. Therefore any monies paid to those entities in lieu is an entirely separate payment from revenue. Or in the words of Bill perhaps, "a gift".

Randall K
May 08, 2019

Yes good for Cuffelinks to summarise the points of view in favour. Within these comments I still struggle to understand how quite a few of these comments believe that the ATO payments are somehow a refund. Without a change to imputation policy I believe that the franking system is really a zero sum game. When a company pays tax on profits, both the company and the Govt are essentially ignorant of the tax status of the shareholders. At an extreme point should all shareholders be zero taxpayers then the current policy would give the Govt one pile of x dollars in and there would have another negative pile, also of x dollars to pay out. So what will happen with the proposed changes is that both zero, 15 and 19 cents tax payers will sell down their franking dividend shares until they reach a zero tax position whilst others will pick up the franking credit benefits as per today's system. Sure the negative pile will diminish and Labor will point to the refund drop as being a success. But in reality the overall tax result will be much the same as now. The low tax people will have moved on.

Except that Labor will pick up only those who choose to forfeit or surrender their zero tax position.

May 09, 2019

I asked this question once before and one of the good souls at Cuffelinks worked out the answer - what is the actual net corporate tax rate once franking is taken into account?

The answer was in excess of 30% because more shares are owned by people on higher marginal tax rates than by people on lower marginal tax rates. Makes sense.

So the 0% / 15% / 19% people who sell these shares will have the effect of increasing the overall net corporate tax rate = more revenue for the government. Which is sort of what they want.

Using this blunt instrument the (assumed) incoming ALP government will force lower marginal tax rate people into different, perhaps more risky, investment strategies (depending upon your definition of such things) in order to maintain their pre-change income and eventually the outrage will die down, and they have an increased tax to spend anyway.

So I don't think it's necessarily a nil sum game at all.

And they are hunkering down and trying to get the issue out of the headlines.

Randall K
May 09, 2019

Ok Geoff thanks for that and I can go with what you say about a non zero game up to a point. But the zero,/15/19% people will still exist and will surely move their investments elsewhere, perhaps to more risky vehicles as you note. And I am still to be convinced that from an overall tax take the Govt gains will not be anywhere near as much as anticipated.

May 08, 2019

"Seems logical":

Seems logical to let dividend imputation and franking credits do what they do perfectly - result in all types of taxable income being taxed at the receiving entity's legislated tax rate.

Seems logical to change the legislated tax rate of various entities to achieve the tax take / incentives sought.

Tim Manning
May 08, 2019

There is inequity throughout the tax system and Labor is grabbing low hanging fruit. Attractive because it is an easy sell, likely wins votes rather than loses them and implementation by switching from refundable to non-refundable offset is simple. Despite the principle that the company tax be taxed at the shareholders' marginal rate being maintained, the company profit should be taxed somewhere. However there is something else going on here. On Q & A. The $1.6m cap on tax free super was mentioned, as was some people receiving a tax return of $250,000. $250,000 franking credits means a franked amount of $583,000 which is an average return on $1.6m of 36%. This is either a lie for dramatic effect or despite the cap balances will exceed it, (particularly if earning 36% with a dividend gathering strategy). Or (and I expect this is possible) super in accumulation mode at maximum 15% tax with earnings of 30% franking credits is also being skimmed. So more information please........ Like negative gearing changes. Ok, its revenue raising - I understand that and why. But the sell is a level playing field for young people by reducing competition for existing houses. True. And house prices will not fall as a result of this policy in itself. But irrespective of competition, if the house prices do not fall (or the rate of increase doesn't flatten) as a result of this policy and maybe rents go up, how does this assist young people to buy their first home. More information please. And finally on inequity generally. Remember Mr Bowen's nurse (young house buyer ?) on $67,000 paying $13,000 tax. Fair enough that's what we charge her. Next door is a mansion and the owner has investments of $10m. No gifts for this person, they pay full tax. Earnings of $500k, franking credits of $215k. Tax on taxable income of $325k less franking credits means $110k tax bill. Fair enough that's what we charge them. On taxable income, nurse pays 19%, investor pays 15%. Is that fair ? And should retirees with tax free status applying the same imputation provision lose 20 or 30% of their outcome because they are rorters ? The maximum tax return from dividend imputation on $1.6m would be about $50k (subject to clarification of the $250,000 refund Mr Shorten says happens). Few would hold shares exclusively fully franked. Seems logical to apply a cap to knock out the outliers and assist those who are most severely affected . Maybe $10k.

May 09, 2019

I think you are right Tim. If Labor manage to implement this policy largely as proposed, they need to at least apply some sort of cap on refunds as you suggest, to ensure that genuine low income earners don’t cop the outsized disadvantage they currently stand to.

That won’t make it good policy, but would at least mitigate some of the (hopefully) unintended consequences, while allowing messrs Shorten and Bowen to save face.


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