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Frank(ing) exchange with Bowen: "Is it fair?"

Editor's introduction

Someone I have known for 30 years sent me this exchange with Shadow Treasurer, Chris Bowen (and we should acknowledge it was good that Bowen responded). The 'fairness' of the franking credits policy has become a major issue for Labor. It was a few days after the initial announcement that the 'pensioner guarantee' was introduced, requiring an arbitrary date of 28 March 2018 for a pensioner in an SMSF to qualify for franking credits.

The policy carries 'horizontal equity' problems, for example, where an investor in a public fund receives a full franking refund while an identical investor in an SMSF loses the refund. Regardless of how people feel about refunding credits, if a policy is based on an important basic principle, why are there so many exemptions or examples of no impact? Among other groups, the wealthiest will retain their franking. 

NO LOSS OF FRANKING REFUND

  • Members of public funds (industry and retail) where the fund has enough taxpaying accumulation members to outweigh the pension members
  • Large SMSFs in both accumulation and pension phases
  • SMSFs where a member was a Centrelink pension recipient on 28 March 2018
  • Personal shareholders with a marginal tax rate above 30%
  • Foreign investors (who could never claim franking)
  • Companies
  • A range of special exemptions such as charities and the Future Fund
  • Other welfare recipients who qualify under the 'pensioner guarantee'

 LOSS OF FRANKING REFUND

  • SMSFs in pension phase (except when qualify for the 'pensioner guarantee')
  • Personal shareholders with a small portfolio of Australian shares who are not 'pensioners' but have limited sources of other taxable income (and may have a marginal tax rate of zero)    

Here is the reader's cover note, followed by the exchange with Chris Bowen. The sender's name has been blacked out.

"I enjoy your commentaries in Cuffelinks – keep up the good work.

I came to the conclusion long ago that use of the terms dividend imputation and franking credits would not resonate with people whom I needed to alert about the flaws in the ALP policy. It needed to be more simple and pick up on the misleading claims of fairness upon which the ALP bases its pitch.

So the loss of 30% of my SMSF pension is a concept people can grasp although the size of the claimed percentage loss makes them a bit sceptical.

But when I point out that retired politicians (and many others) on a similar pension are unaffected by the ALP policy they become very interested as it appears unfair. This is a very important issue that will have consequences for many vulnerable retirees apart from the ALP’s stated target population.

Instead of just grumbling about it I decided to do some of my own politicking! To take my message further I spent some of the pension money that I clearly stand to lose in producing some banners and street signs – see photograph.

fairness

fairness

However, within 24 hours of installation, these advertisements are usually removed, presumably by people who disagree or who don’t want the issue highlighted.

I wrote to Chris Bowen pointing out the problems with the policy and that there were alternative and fairer ways to raise $8 billion in a budget of $500 billion. I even suggested simplistic policy alternatives, if you have to go after retirees, like a regressive tax on pension income (however sourced) at a low rate (say 3%) on amounts in excess of $80,000 as a means of raising revenue. At least this would be fair and consistent with income tax being calculated upon income amount rather than source of income.

People approaching retirement had every right to rely upon the prior arrangements in planning their retirement.

Even the Grattan Institute and the Parliamentary Budget Office acknowledge that the ALP policy, while targeting the wealthy, will also severely affect many people with modest assets and income. These are the less well-off people for whom the ALP used to stand – but now they are getting it in the neck when they are most vulnerable.

There was a time when I used to work at polling booths for the ALP in western Sydney. But Bowen has invited those who disagree with his flawed policy not to vote ALP. I will be taking him up on his proposal and suspect that thousands more who are feeling ALP hands in their pockets will do likewise.

Having got nowhere, I tried the 'fairness' test with him and copies of correspondence are attached for your information."

policy fairness

 

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Franking credits lament: was it worth it?

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77 Comments

D Ramsay

May 12, 2019

Re Bowen's non answers:
" Frankly he won’t care whether the results are fair or not, he has an election to win"
So him and his mates dredge up some un-researched thought bubbles on how to get more $ out of the economy and then make far too many $ promises they wont be able to keep.
Then after the election, if they win, we are told of "non-core promises" that had to be scrapped because of un-forseen circumstances.
So far Shorten/Bowen have promised everything short of paying off everyone's mortgage!

Paul

May 06, 2019

Cuffelinks when it started was a great resource but it has become so partisan on this franking credit issue it’s indistinguishable from the Murdoch press. Cuffelinks owes its readers/commenters, which predominantly seem to be of a retired pensioner variety a more balanced analysis of this issue. Up until jow it has been woefully inadequate and has caused me to lose a significant of faith and support for this website.

Graham Hand

May 06, 2019

Hi Paul, yes, we have given considerable coverage to the franking credits debate, as it is important for many of our readers. While we do not target retirees specifically, surveys show 75% of our audience is over 55. So of course we want to inform them.

We do not employ journalists to cover particular subjects. I write on subjects of interest to me, or I write covering notes if someone sends in material. Our content is written by market experts, and despite many offers in these pages, nobody has provided an article in favour of the Labor policy. We have published dozens of comments in favour of the policy, but nobody has provided an article. Many people have written well-researched and argued articles against the policy. Were we supposed to refuse to publish them?

I also point out that in covering the Parliamentary Committee run by Tim Wilson for the Liberal Party, we were critical of the structure and partisan nature of the inquiry which did not give both sides fair representation. For example, here:

https://cuffelinks.com.au/report-franking-credit-inquiry-released/

If I write an article called, "How to avoid Labor's franking policy", is that a criticism of Labor or the policy? No, it's legitimate information on how to respond to a regulatory change.

You criticise us but without providing an article. One approach we could consider is to collect all the comments for the Labor policy in one article, and publish that.

And I note, whatever coverage we provide on franking, we continue to publish far more on other investing ideas. Unfortunately, franking receives 90% of the feedback.

Jack

May 06, 2019

No one (including Chris Bowen) on the Labor side will defend this policy - because the policy is indefensible!

Geoff

May 06, 2019

The option to not read the articles you don't think you'll like is always available to any reader. Casual observation of the comment count, without necessarily understanding the content, will tell the observer that it's a hot button issue amongst Cuffelinks readers.

Why would a publisher, online or otherwise, not publish articles that it has demonstrable proof that its readers wish to read?

And, has been pointed out, the opportunity to provide a reasoned dissenting view is there for anyone who wants to take it up. My observation is that most commenters who are "for" the franking credits proposal cannot or do not mount a coherent rationale for the proposal, and in fact don't even try, resorting to the pejorative and hurling epithets like "boomers", "entitlement" etc. etc. in anger.

Personally, I think there's an argument that no shareholder of a corporation, that corporation's profits having been taxed at 30%, should have ALL that tax refunded via excess franking credits - and that a partial percentage refund, or a limited amount refund approach could easily be "sold" to the general aging populace on the grounds of public good, and implemented over a reasonable period time without too much grumbling - allowing people to adjust.

It's the nature and speed of what's proposed that has people, rightly, annoyed.

Tim

May 06, 2019

An average of 3 articles per annum on the franking credit subject have been published since Cuffelinks inception, up until the “Committee chair call to Cuffelinks readers” Tim Wilson franking credit topic was published on November 7. Since that publication of the Tim Wilson franking credit topic, Cuffelinks have published 33 articles per annum (the period has been annualised) on the franking credit topic.

Graham Hand

May 06, 2019

Thanks for the calculations, Tim. Sounds like comprehensive coverage (although am I to read 33 articles over 6 months annualised means about 16 articles?). We publish about 8 articles a week for 50 weeks a year, that's 400 articles a year plus 50 White Papers.

Dudley

May 06, 2019

"partisan on this franking credit issue":

There is only one redeeming feature of Bowen's scheme - it might result in some revenue for the Commonwealth.

That has be more than adequately commended by Bowen. And refuted by others.

All other features are negative and regressive.

Paul

May 06, 2019

When 25 years of tax free income isn’t enough?! Don’t the “prior arrangements” referred to in the article include tax at 15% in pension? By this logic, shouldn’t anyone starting a pension before 07 be grandfathered at 15% tax rate?

Ken Purnell

May 05, 2019

I wish to challenge the comment if you do not pay tax you are not eligible for a tax refund. It has been well documented that for a wage earner the company pays the tax on the wage earner's behalf. Similarly for a shareholder the tax is paid prior to the dividend distribution. Hence in each case the receiver technically receives monies that are tax free that is no further tax is required to be paid by the receiver. This being the case how can anyone based Bowen's definition be eligible for a tax refund?

Dudley

May 05, 2019

"How is that fair?":

Not just future franking credits are affected.

Accumulated franking credits would be immediately rendered worthless to a company owner with an income of less than $29,608 - should Labor's proposal be enacted.

An example would be a small business operated as a company and owned by family shareholders who retire.

The example company accumulated franking credits for tax paid over many years and has cash-able assets which could be paid as dividends with corresponding franking credits for some years.

Not refunding 'excess' franking credits results in a flat 27.5% personal tax on gross dividend from $0 to $110,638.

Alternatively, taken as wages, the tax rate is 0% on income from $0 to $29,608 (and 31.5% to 53.5% for more income).

BUT; paying wages does not distribute the accumulated franking credits to the company owners.

That makes the accumulated franking credits worthless.

The lost value might be any number from $0 to $1M+.

Ian

May 05, 2019

Dear Mr Bowen, politicians are in fact NOT on "defined superannuation contribution schemes like everyone else".

Most people are receiving the SGC contribution of 9.5% from their employer.

Politicians receive 15.4% contribution. How is that fair?

If you truly believe in fairness, politicians should get the SGC rate "like everyone else".

Tom

May 06, 2019

“Politicians receive15.4% contribution. How is that fair”. Ian, not sure if you are aware, but Mr Bowen is not the current treasurer and is not in a party that has been governing Australia since 2013.

Kath

May 05, 2019

I love your Cufflinks, please keep it up.

Franking with Bowen gave me a few good laughs (usually not a topic for mirth). As an 84 year old with long living genes I lose 20% of my entire income having had a divorce after rearing 5 children and with 11 grandchildren and with restraint and hard work (part time until 30.6.19) I am self sufficient in my old age. Good health helped a lot.

Having followed the debate avidly I have heard of a lot of elderly people especially women who are worse off than I am.

Peter Clark

May 05, 2019

As it is superannuation, is it reasonable for you to also use it to live in retirement?
If you require $50,000 to live, is it reasonable to ask you to take that extra $16,000 or so from your superannuation to supplement your income?

Sue A

May 05, 2019

Labor railed against the unfairness of the Hockey budget but now refuse to acknowledge the unfairness of their franking credit policy. Setting up a false divide between the “wealthy retirees” and “struggling families” erodes social cohesion. I am 59 and planning to retire in 3 to 5 years, but I am also a mother and aunt to the next generation and am vitally interested in their ability to access quality education and healthcare services . I was astounded when Howard/Costello made wholesale changes to Superannuation which resulted in many wealthy people paying no tax. But if we are to unravel these overly generous arrangements, lets not do it in a piecemeal and unfair manner! Labor should show real courage and leadership.

Their current policy seems to have been written by industry superfunds with the aim to kill off the Smsfs. It also seems to be an opening gambit with an eye to a complicated senate, post-election - God knows where it will end up, ‘cause our politicians certainly have no idea!!

Glenn

May 03, 2019

I too asked my Labor candidate- although he has nothing to lose putting his name up in Bradfield, just to be accused of getting the story from accountants or other LNP stooges, a longer discourse to make me feel bad about underfunded schools/ nurses/ new start etc ( ok.... I’m all for higher pensions and more nurses,although I’m not too sure on how that gets determined between state and federal departments) and other Burn All the Rich class warfare. Or about how it a truth that any franking credits are just gifts.

But it read as a pretty pat answer. Anyway, I guess I’m just left with telling him/ them that I’ve been a good Labor man my whole life, but not this time. So when the ALP want to review how they could lose the unloseable or not get enough bums in the Senate... Bill/ Chris, this, superstars, this...

Bruce Gregor

May 03, 2019

The letter writer did not pick the best example (industry fund vs SMSF with the same 100% Aussie Shares for an allocated pensioner in both. Bowen's reply would probably have been no different but this is the clear hypocracy in this issue which amounts to protecting union mates and the Australian Supers of this world. A policy with so many uncorrelated exemptions must be bad policy. But let's not forget Bad Policy of the past begets Badder future policy. Peter Costello's 2006 removal of all tax on Super pensions in 2006 was bad policy which left the door open for this bad policy by Bowen. If the pensions remained taxed and 15% accumulation period related offsets to income tax in pension phase remained, there would have been no million dollar tax rebates to some SMSF pensioners to spawn this Bowen franking credit disease. My prediction is íf Labor wins, SMSFs will be removed from ATO and brought under APRA and a new Super regulator more easily controlled by Shorten and his ACTU mates will be introduced to replace APRA.

Nick

May 05, 2019

I have sent an email to Labor (about 6 weeks ago and still unanswered) how it's fair that someone in an Australian Super with $10m will continue to benefit fully from every cent of franking credits whilst someone with $600K in a SMSF will lose the lot in pension phase). How is that fair? They won't answer the question because they know it is not. It's a stupidly conceived policy...

HM

May 03, 2019

Dear Graham,

I read avidly all your articles and enjoy them very much - thank you for that excellent service.
I have studied your latest comments on franking credits and remain confused. Labour continues to say that no cash refunds will be given to people who pay no tax in the first place.

But then I picked up the following from your comments:

NO LOSS OF FRANKING REFUND

*Members of public funds (industry and retail) where the fund has enough taxpaying accumulation members to outweigh the pension members
*Large SMSFs in both accumulation and pension phases
*SMSFs where a member was a Centrelink pension recipient on 28 March 2018
*Personal shareholders with a marginal tax rate above 30%
*Foreign investors (who could never claim franking)
* Companies
* A range of special exemptions such as charities and the Future Fund
*Other welfare recipients who qualify under the ‘pensioner guarantee’

In other words, Labour targets exactly the Low Income Personal shareholders who do pay tax, like I do, but at 19%! How is that fair?

As I can’t see the highlighted statement in Labour’s policy, I can’t even take that up with Chris Bowen, not that I would realistically expect a reply!

Keith

May 03, 2019

Is it possible that this could be a zero sum game? A receiver of franking credits restructures his portfolio because he will no longer be entitled and sells his stock to someone who can receive the credits? Or am I missing the point?

Gen Y

May 03, 2019

Probably a change in culture from Corporates, reducing their dividend payout ratios. More buybacks like in the US, more investment in innovation hopefully

Ian Perren

May 04, 2019

big problem - if you sell shares - you pay capital gains tax - thus have less capital which earns less income. catch 22

Keith Brodie

May 03, 2019

No mention by Bowen that unions are also exempt and will continue to receive franking credits. Just saying....

Michael

May 03, 2019

Keith, I also thought that unions will also be exempt, but now I am not so sure that this will be the case. I'd love to hear from anyone who can point us all to where the Labor policy says that unions will be exempt. What I can find is the following, on page 7 of an undated Fact Sheet at https://d3n8a8pro7vhmx.cloudfront.net/australianlaborparty/pages/7652/attachments/original/1520827674/180313_Fact_Sheet_Dividend_Imputation_Reform.pdf?1520827674 :

"Labor’s policy will only apply to individuals and superannuation funds, and therefore will not
apply to bodies such as:
• ATO endorsed income tax exempt charities; and
• Not-for-profit institutions (e.g. universities) with deductible gift recipient (DGR) status."

The words "such as" are important, as they do not exclude other bodies like unions and employer associations from being exempt.

But on the ALP website, the words are not quite the same - the words "will only apply to individuals and superannuation funds" do not appear.

Based on the Fact Sheet, it would seem that any monies held by an organisation like a trade union or employer association or university etc would be exempt; but based on the website wording, this is not so clear.

Graham, can you help on this? It's an important issue given the way that Labor describes this cash refund as being so abhorrent!

Ian

May 05, 2019

See https://www.ato.gov.au/Non-profit/Your-organisation/Do-you-have-to-pay-income-tax-/Types-of-income-tax-exempt-organisations/Employment-organisations/

Unions are income tax exempt. Given the fact sheet statement above that the policy applies only to individuals and super funds, unions are covered in the "such as", and will continue to receive franking credit refunds.

Michael

May 05, 2019

Ian, if this is correct (that is, organisations like unions WILL continue to get franking credit refunds), why are the Liberals not raising such hypocrisy? Even today Keating said it was terrible that Howard brought this concept in, yet Labor plans to KEEP this "terrible" feature for organisations like unions??!!

If the Liberals cannot raise this huge hypocrisy in the next two weeks, actually, in the next week because people are already voting then, quite frankly, they don't deserve to win the election. Rightly or wrongly, they are (currently) being out played by Labor on this issue.

Lyn

May 03, 2019

Mr Bowen's first reply says $500mill estimated at start of refunding credits already paid by shareholders and is now 6billion. It's been 19 years, should it not be expected in 19yrs that companies streamline/increase turnover/ produce higher profits and in doing so, naturally the 30% tax deducted will expand to a higher $ figure than 19yrs ago ? It'd be a poor show of Australian companies had they not, leading to......
the Yr 2018 Annual Report of the Future Fund, most know it's for public service future pensions, reports in Income from Operating Activities, $835,678,000.00 in Franking Credits and therefore reflects in its overall performance. Those credits indicate the Fund receives just under $2billion in Austr. franked divs which demonstrates faith in Australian Co.'s and good management of funds assigned for that. Whilst the F/Fund is not taxable as it's Govt money, the Fund's accounting seems to imply reliance on its own tax credits 'received' to sideline those credits towards its future pension liability & other schemes it manages. It's been indicated the Future Fund will be exempt re tax credits ( "as Govt money anyway" ) . If Labour's proposal sees light, the $835,678,000.00 credits should pass to General Revenue for current budgets just as they will for other's credits affected. If not, public service superannuants will receive a benefit that some parts of the general population will not.
Why is it not as important that others seek to emulate and achieve a similar outcome to the Future Fund on the same playing field?

grant jacks

May 02, 2019

there is no real definition of pensioner exemption for example does a person holding a health care card but does not get a part or full pension. is this person exempt ??

Graham Hand

May 02, 2019

Hi Grant, there is a definition, a health care card does not seem sufficient: Under the Pensioner Guarantee: - Every recipient of an Australian Government pension or allowance with individual shareholdings will still be able to benefit from cash refunds. This includes individuals receiving the Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance. - Self-managed Superannuation Funds with at least one pensioner or allowance recipient before 28 March 2018 will be exempt from the changes.

Peter McDonald

May 02, 2019

Too bad that people get so polarised over this policy. I don't have a problem with the principle of those with very large pension balances paying some tax. What I do have a problem with is the discriminatory and selective way that Labor is intending to implement things. I also have a problem with the way the policy is being justified by Shorten and Bowen. They continue to refer to cash refunds based on the obsolete superannuation rules applying before the pension caps were introduced. This is at best deceptive and more properly should be called a lie because the policy is applied going forward not backwards. It is of no practical interest what people made out of the system
years ago. What are they trying to hide?

Owen Lennie

May 02, 2019

To receive gross dividends of $90,000, implies a share portfolio of $2.25m, at a 4% dividend rate. If the SMSF is, say 35% in shares (just above ATO average for larger funds), the total size of the SMSF is close to $6.5m. ATO stats show that only 3.4% of SMS Funds have total asses above $5m.
Bowen's calculations also do not take into account the $1.6m limit on pension phase funds in an SMSF. The whole policy is based on out of date information.

Michael

May 02, 2019

All I know is that my spouse and I on a combined income of $70k will lose $5k of income while my son and his spouse who are on a combined income of $170k will receive increased childcare benefits of $1.2K. Fair?

Gen Y

May 03, 2019

Probably. They are likely paying a sky high mortgage, juggling work each, trying to give their kids their best start in life, paying full PAYG tax with minimal deductions and spending tens of thousands on child care. They need anything they can get. You can sell $5k worth of shares every year to top up the difference. What assets are they selling to fund their child care costs?

Ralph

May 02, 2019

Good afternoon Graham,

Thank you very much for your publication Cufflinks it fills a void and is much appreciated.

I like your reader today have been trying to obtain answers from politicians to specific questions, all I have received so far has been a diatribe of party policy talk.

Surely the question they should be answering is :

Why is it that people with their super in a large retail fund or industry fund will continue to fully receive the benefits as they now stand, while those with their super in smaller funds and SMSF will not.

All the best.
Ralph

Graham Hand

May 02, 2019

Hi Ralph, I agree, why doesn't a reporter ask that one simple question. Cheers, G

Jillian

May 02, 2019

I second that!

Ian

May 06, 2019

Can cuffelinks arrange to ask that one simple question?

Gen Y

May 02, 2019

You're right. It's not fair. Public offer funds should be forced to segregate their Pension and accumulation assets, ensuring only those in accumulation can use the franking credits received to offset all or part of the contributions and earnings tax paid. This would make Labor's proposal much fairer and also further close the loophole.

The baby boomer brigade needs to be careful that all their noise does not see Labor adopt this approach. Right now you have an easy out: Move all of your Australian Equity exposure to a public offer fund. Many even allow you to pick your own shares allowing you to have the same holdings you have today.

With $50k in pension income, you must have Super of ~$1,000,000. That capital is designed to fund your retirement, not just the earnings on it. Selling down a small amount of your holdings each year to retain your $50k pension isn't going to see you falling into poverty, it's just going to reduce the inheritance to your kids. The system was designed to support your retirement, not build a tax free inheritance.

Jack

May 02, 2019

You're right. Super should not be used to build up an inheritance for your kids, that's what the family home is for. It is not counted in the assets test for the age pension and free of CGT. That way the taxpayer pays for your retirement and the kids walk away with your acquired capital. It is the Australian way.

Graeme Bennett

May 03, 2019

We might be talking about different things Gen Y but superannuation pensions are a payout of a combination of income and capital. Very few super funds would generate enough income to pay the minimum pension requirement without eating into capital regularly.

Gen Y

May 03, 2019

Graeme, The exact argument that the author is making is that they are not prepared to sell down their capital because currently their dividends + franking credits meet their pension needs. This presumably also provides enough income to meet the minimum legislated drawdown levels. When a 4.5% dividend is grossed up to 7%, it’s not hard to avoid capital drawdown

Jon Kalkman

May 03, 2019

Gen Y, as no doubt you know, super pensions mandate a minimum pension annual payment in cash that increases with age. As follows:
Under age 65 4%
65 - 75 5%
75 - 80 6%
80 - 85 7%
85 - 90 9%
90 - 95. 11%
95+. 14%

If you can find me an investment that pays 9%+ income (with or without franking credits) so that I do not have to draw down capital - please let me know.

The loss of franking credits will bring forward the time where the capital is liquidated and therefore truncates the pension by about 10 years. That way we all go on to the age pension 10 years earlier. That's a smart policy isn't it?

Jon Kalkman

May 03, 2019

But on the other hand, if I have my super in an accumulation fund in retirement, there is no limit on the size of the fund, there is no requirement to withdraw any money, ever, and the tax is only 15% on the income. What's more, franking credits can pay some or all of that tax. What a great way to build up an inheritance for the kids.

So tell me, why do we allow accumulation funds to continue in retirement - with no obligation to reduce that fund over time. In my view, all super in retirement should be held in pension funds (limited to $1.6m) that is progressively drawn down.

Imagine if all money in excess of $1.6m was forced out of super altogether in retirement - how much tax would that collect? Now there is a dangerous idea.

Geoff

May 03, 2019

Gen Y - I'd suggest that most people aren't afraid of drawing down their capital because of a desire to leave an inheritance - although, with the constant screaming about house prices, I'd have thought more support for that concept would be forthcoming - it's because no-one knows when they're going to die and while it's very simple to plot a nice sensible drawdown strategy via a spreadsheet, once you start tapping capital, it can very quickly disappear, especially if you have a few major events such as major illness, GFC2 etc. in the mix.

So what do you do if you run out of capital in Row 20 of your Excel spreadsheet but you live to Row 28?

Anyone who takes the considerable effort and sacrifice to amass a large sum of money is either (a) lucky or (b) an independent person who doesn't want to be a burden on society - ie. including the Gen Y taxpayer. Probably a bit of both.

Turnbull's cap was the most sensible thing anyone's done to super for a very long time - because ultimately you're right - people shouldn't be able to amass huge sums in super and not pay any tax at all - so now they can't. Should the cap be lower? Maybe. Personally I think it should be about $1 more than whatever I end up with in super, which will not be $1.6M.

There's also a hell of a lot of focus on SMSFs in this discussion but there are many people, me included, who keep assets outside of super (and pay more tax - aren't you grateful?) because they fear the endless tinkering by successive governments of both types. They lose franking credits too - or will. I haven't yet as I'm not retired and still have a marginal tax rate that starts with a 4, and they're not something I have ever baked into retirement calculations - but it looks like I'm not going to get any.

Also - a 4.5% yield doesn't gross up to 7% - does it? A touch under 6.5% by my calculations.

david

May 02, 2019

Labor seem quite happy to hit what they assume to be the soft target of smsf 's but the response so far shows that the target is not so soft as they think. My partner and I have an income which still makes us eligible for the Commonwealth Seniors Health Care card yet we stand to lose over $10,000 /annum fc refund from my smsf.

As a life long ALP voter we shall take Mr
Bowen's advice and vote against them,

Gen Y

May 03, 2019

Why don’t you just sell $10k per year worth of your shares to make up the difference? If you’re getting $10k a year in franking credits it’s not going to send you to the poverty line!

Dudley

May 03, 2019

"Why don’t you just sell $10k per year":

1. the known capital cost of aged care at around 85: ~$500,000 each.
2. the unknown cost of living to a very old age.
3. the unknown income from the distant future Age Pension.

There is currently no way of insuring against the unknown other than through capital preservation and growth.

Duncan

May 02, 2019

Its not correct for Bowen to say I've paid no tax during the year therefore I should not get a refund of tax paid on the income from my shares.
If I hold a term deposit or direct property, the income I receive is not taxed at source but taken into account at my year end tax return. But if I hold a share the company pays tax and this is reflected in the franking credit on my dividend income. If tax is withheld on my term deposits or rental income then that is also taken into account when I complete my tax return year end and I may receive a refund of tax withheld.
So it seems that tax treatment of income derived from the 3 asset classes are not treated equitably

Sally Bembrick

May 02, 2019

The letters to Chris Bowen were simple to understand but but unfortunately too complicated to elicit a simple response from Mr. Bowen.

I have recently sent a letter to my local MP re the effect that the removal of franking credits would have on my SMSF pension income. I also asked if he would raise the issue of minimum pension drawdowns in light of the current economic climate.

With yields now so low I believe that the minimum levels should be reduced, as was the case after the GFC.

My query was passed onto Josh Frydenberg and I received a response from the Assistant Treasurer.

I felt that the response was condescending ... and as with the responses above ... the question was not answered. I responded with a cc to multiple ministers (from multiple parties) and have yet to receive a reply

Richard

May 02, 2019

Bowens 18th March response extract: “Of course politicians such as myself are on defined superannuation contribution schemes, like everyone else”

Is Bowen/Labor party as stupid as they appear “defined superannuation contribution schemes, like everyone else” _ The whole unfairness of the proposed FC change is the majority of the Aus population are on “at risk Accumulation funds schemes”, not rolled gold defined unfunded public schemes!!!!!!!!!!!!!!!!!!!!

Leisa Bell

May 02, 2019

Hi Richard, I think the distinction here is defined <strong>contribution</strong> versus defined <strong>benefit</strong>. It's the defined benefit schemes that carry the 'unfunded' issue.

Richard

May 02, 2019

Leisa, thanks for your response.

Yes I would agree, but you think a person in his position would be more careful with his language, because obviously Super funds in Aus are universally known ‘accumulation fund’ or ‘defined benefit superannuation’.

Gavin

May 02, 2019

“Is Bowen/Labor as stupid as they appear, defined superannuation contribution schemes, like everyone else”. Apparently not.

Richard

May 05, 2019

Having repeatedly dodged questions about the actual cost of Labor’s grand environmental plan, the Opposition Leader dismissed all the fuss, likening his emissions-reduction policy to stopping “chubby” people eating burgers.

“You know what, mate, you are a great athlete,” he said to the radio show’s morning host.

“But if you had a friend who was perhaps on the large side, the chubby side, and they had 10 Big Macs a day … there’s a cost to not eating the Big Macs. But in the long term it’s an investment isn’t it? ”

M A Cathey

May 02, 2019

Excellent letter to Bowen about fairness and that is the issue as its just isn't fair. ALP keeping going on about "if you don't pay tax you shouldn't get a refund" .....
So what if you are in accumulation phase and smsf pays 15% tax.....you are paying tax.....so does that mean you should get a refund...
At the end of the day we have politicians who just don't understand(or maybe dont want to). They are just interested in getting re elected and not into fairness or whats good for the country. If ALP get in and if the FR Cr legislation gets passed the amount of tax collected will be bugger all(most retirees will change their structure or what they invest in). So the budget will blow out and we will all pay....Is that what they mean by fairness!!
Why don't we pass tax legislation that is well thought through and applies to all. The limit on deductability of accountants/advisors fees is another issue. Most self employed pay more than $3000 in advisors fees p.a.
On and on the attacks come and prove a complete lack of practical understanding of the real world.
Has anyone thought that if you reduce the tax rate the Fr cr will also fall and the after tax cost of advisors fees will increase. We have a clear understanding of ALP policies. The election result will say a lot about Australia

David

May 02, 2019

Labor just can't live within their means and haven't since 1989.

It's also a potentially massive bonus for union super funds if SMSF money goes looking for a new home.

Should unions and their political party (Labor) be able to push what is obviously a conflict of interest?

Bruce

May 02, 2019

I have read with great interest stories by Graham Hand re franking and industry super. The level of information from Cuffelinks is better than anywhere. I am likely after reading articles by Mr Hand at moving some of my SMSF (single member - me with at pty ltd trustee) to an industry fund shortly, to get a feel for the fund before more money is transferred if excess franking refunds are stopped. My accountant who does the accounting of my SMSF has told me that he would need to supply me with a Statement of Advise for any withdrawal from the SMSF (along with a rollover statement of course). I question that, as it is me a member of my SMSF wanting to move some money to another fund. It has nothing to do with my SMSF. So would it be rude to ask if what he is saying is true ie a Statement of Advise is needed. To clarify he does not provide me financial advise, he is not at licensed financial adviser. I am at a loss as to who else to ask, so my apologies if there is an issue in answering.

SMSF Trustee

May 02, 2019

Bruce, just ask them 'why'?

If they can't or won't explain it, then change adviser.

Dean

May 02, 2019

Hi Bruce,
Your accountant does not need to provide you with a Statement of Advice unless they are providing you with a product recommendation.

You can open a new account with an industry fund (or a retail fund) which has nothing to do with the SMSF, then make a request to the trustees of the SMSF (which will be you) to rollover a portion of your member balance into the fund you choose.

Your accountant will need to prepare a rollover benefit statement to send to the new fund along with the rollover but not a Statement of Advice if it is a request from you as the member.

Jillian

May 02, 2019

Bruce, have you investigated the fees of the industry funds? I also contemplated doing this but the fees were three times the loss of my franking credits.

Graham Hand

May 02, 2019

Hi Jillian, without taking sides in the debate, see this article for a cost comparison. There's a difference between the large public funds and the 'direct investment option'.

https://cuffelinks.com.au/steps-smsf-beat-labors-franking-plan/

Dudley

May 02, 2019

Our Shadow Treasurer is not good with tax calculations.

‘He said a nurse who earned $67,000 a year paid $13,000 in income 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.’

https://www.afr.com/news/politics/national/two-class-tax-system-can-t-go-on-20190415-p51eal

I suggest always checking Bowen’s calculations as they are frequently incorrect – and he has used this incorrect example before.

The nurse earning $67,000 GROSS would have a tax liability of $13,322. After offsets and Medicare a tax liability of $14,132. Tax of $14,132 paid by employer credited by ATO to nurse equalling tax liability, net tax $14,132.
Net $52,868, tax $14,132.

To receive $27,000 franking credit the super fund would have to receive $27,000 / 30% = $90,000 GROSS dividends. Super fund tax liability of $0 results in cash dividends $63,000 plus $27,000 refund.
Net $90,000. NOT Net $52,868 – wrong comparison.

To receive Net $52,868, the super fund would have to receive cash dividend 70% * $52,868 = $37,008 plus refund 30% * $52,868 = $15,860. Super fund $52,868 GROSS. Super fund tax liability of $0. Tax of $15,860 paid by company credited by ATO to super fund exceeding super fund tax liability of $0 by $15,860 and refunded to super fund, net tax $0.
Net $52,868, tax $0.

The difference in tax paid is NOT ($13,000 – -$27,000) = $40,000 which Bowen implies; and it is NOT ($14,132 – -$27,000) = $41,132 after correcting Bowen on tax paid.

The difference in tax paid IS ($14,132 – $0) = $14,132.

Our Shadow Treasurer should check or perform simple tax calculations accurately or present a coherent example.

‘He didn’t know enough or find out enough about each of those topics to question the data being fed to him. Peter Costello and Paul Keating didn’t make mistakes like that.’

https://www.afr.com/news/politics/national/why-the-holes-in-bowen-s-numbers-matter-20190410-p51cxy

Bill

May 02, 2019

“Our shadow treasurer is not good with tax calculations”. MP Bowen has more accuracy than your mathematical formula for the average wage earner obtaining 1 million in super over the last 40 years. 5 out of 1000 superannuants have a balance greater than 1 million. Yet you stand by your position this was easily obtainable for the average income earner. Those who live in glass houses......

Dudley

May 02, 2019

" MP Bowen has more accuracy than your mathematical formula for the average wage earner obtaining 1 million in super over the last 40 years.": The entire Labor Party apparatus had well over a year to check Bowen's calculations, and, despite having Treasury to consult and repeatedly being shown the errors, they persisted with incorrect methods and results. They are collectively no good with numbers. An average earner can easily acquire $1M over 40 years with or without super - by saving around 25% of gross and investing at a modest real yield. It is a straight forward calculation that everyone should know how to perform - and perform it.

Warren Bird

May 02, 2019

Grrr, I know I said I'd made my last contribution but this demands a response.

The maths are straightforward. Had someone who was on average earnings, starting 40 years ago, put 9.5% of their earnings into super and invested in the Australian share market, then after allowing for contributions tax etc their fund balance would today be at least $1 million.

That is not saying that they have contributed $1 million. They've contributed much less than that, of course. But the share market has risen and earnings in a super fund are reinvested, creating a strong compounding effect. Over 4 decades the All Ords accumulation index is up 66 times.

This is not just 'saving' we're talking about, but 'investing'. That's always been how super was meant to work.

The fact that only a few have actually done this is noted, but doesn't mean the maths is wrong! In turn, it doesn't mean that someone who has actually accumulated that is automatically 'rich'.

Again, I'd appreciate more factual, respectful debate about this than the insults, comments about glass houses, etc.

Tim

May 02, 2019

“An average earner can easily acquire $1M over 40 years WITH OR WITHOUT SUPER”. You have debunked your argument by changing your position by now including non super assets.

Dudley

May 02, 2019

"WITH OR WITHOUT SUPER":

I did not imagine that the meaning of "OR" could be unknown 'or' misconstrued. 'Or': true when either term is true.

Mart

May 02, 2019

Further debate here .... https://twitter.com/Bowenchris/status/1123059333313359873

Tony

May 02, 2019

Is it fair? The Grattan institute and The AIST say yes.

Jan

May 02, 2019

According to Andrew Crook, Crikey Dec 12, 2008, the Grattan Institute was set up by Kevin Rudd.
"Since it was announced in April, barely a peep has been heard from the Grattan Institute, Kevin Rudd's $50 million super think tank named after a street abutting Melbourne University. Headed by ex-McKinsyite John Daley, it’s supposed to mimic the Washington-based Brookings Institution, the think-tank of choice for Clinton-era centrists. But if the list of backers is any guide, the local version's shaping up as the intellectual playground for a new-Ruddism, backed by a truckload of taxpayer cash.
The Institute says it will be "apolitical", dealing with "fact-based" conundrums, as if facts are ideologically neutral and government the preserve of disinterested policy wonks. But it really represents the dawning of a new era as the right-wing think tanks of decades past are subsumed by the ALP-connected."

If this is true, then the GI can hardly be called "independent". Not surprisingly, it supports Labor's FC policy. also, last night's 7.30 report (ABC), which also had a spokesperson from GI defending the policy. Clearly, the ABC report was heavily biased towards Labor. (And here is me thinking the ABC always shows bias towards the political right). Setting aside the fact that the ABC still doesn't understand how the imputation system works, its shots of a retired couple in their rather large boat (shots of which were used in the report fade-out just so viewers would get the "wealthy rorters message) was clearly intended to support labor's claim that it's only the big-end of town that will be affected. The truth is that the wealthy will continue to use the FCs to reduce their tax to zero so, contrary to Shorten's claim they will pay no tax but will still get to use their FCs. Oh, and if paying no income tax is the criteria for no cash refunds, then why will unions, charities and the Future Fund which pay no income tax still get cash refunds? From every angle this is an UNFAIR tax that in the end will not reap the revenue Labor envisages.

Allan

May 03, 2019

Even with the apparent bias of the Grattan Institute, John Daley's early assessment of the proposal was actually not that flattering, and clearly highlighted the obvious weakness:

"So abolishing cash refunds, but keeping franking credits for those who do pay income tax, is probably not first-best policy. It abandons the principle that all company profits should be taxed at an investor’s marginal rate of income tax. And it reduces the incentive for retirees to invest in companies from Australia rather than overseas."

https://grattan.edu.au/news/a-piecemeal-move-towards-a-fairer-tax-system/

I don't know if Chris Bowen simply doesn't understand the implications of his proposal, is sacrificing equity and logic for political expediency, or has simply pinned it to his ego and refuses to let go regardless of the flaws.

Whatever the case, it is this irrationality, empty political speak, and lack of apparent concern for the formulation of sound policy that concerns me more than anything.

Surely we should be able to expect better than this from politicians of any stripe.

Bill

May 02, 2019

Not owning any shares in Australian listed companies, and awaiting my defined benefit pension income stream in 8 years time, sound fair to me.

William liew

May 01, 2019

As per usual, pollies do not answer your questions! Of course this is unfair to this person and all retirees.

Justin

May 02, 2019

It is unfair to this person and some retirees not captured under the grandfathering provisions for eligible age pensioners. Just not as unfair as the current policy settings throwing the youth of Australia to the wolves.

Ian

May 02, 2019

The problem isn't only that Chris Bowen doesn't understand the imputation credit policy and it's unfair aspects, it is that the journalists in tv and newspaper media don't either, so can't (or maybe won't because of their own political leaning) challenge Bowen. I too have had response from Bowen's office completely missing the point of the questions I raised and totally ignoring the fact that some "non taxpayers" in identical financial positions as $1M SMSF self funded retiree will get the cash rebate. He also can't see that while there are so many exempted recipients of cash rebates it is inevitable that those Funds losing the rebate will sell their shares to those who get the rebate, so the projected saving cannot be achieved.

Graeme Bennett

May 03, 2019

I'd be surprised if he didn't understand the policy and its outcomes. He would not have written the correspondence above. Frankly he won't care whether the results are fair or not, he has an election to win and political campaigns are not for the fair-minded, it's a matter of buying the most votes you can at the expense of losing as few votes as you can. That's the realpolitik of the situation.

Don't pin any hope on the media. For the most part screaming 'rort' and 'gift' will appeal more to their audiences than a considered approach to the issues involved.

I won't be selling high yielding banks shares for lower unfranked yields.


 

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