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Shadow Treasurer Chris Bowen responds on franking policy

The Federal Opposition Labor Party intends denying franking cash credit refunds except for welfare pensioners. This subject has become one of the most heated debates on our website. Although it relies both on Labor winning the next election and then passing the legislation, the most recent Newspoll for two-party preferred voting has Labor ahead of the Coalition by 52-48. However, PM Malcolm Turnbull remains well in front of Bill Shorten as the ‘better PM’.

A reader of Cuffelinks forwarded this email exchange with Shadow Treasurer, Chris Bowen. The reader’s identity has been removed because it reveals personal details.

Email to Chris Bowen, 21 May 2018

Dear Sir,

I have sent a letter and email previously expressing my outrage at the proposal but have never had any reply, so third time lucky.

My query is;

My understanding is that the only people who will be able to claim the cash refunds of franking credits will be those who were already in receipt of a Centrelink full or part pension on the day of the announcement.

I also understand that anyone not qualifying as a Centrelink pensioner on that date will, even if in future years they do qualify for a Centrlink pension, never be able to claim the cash refunds.

My wife and I have a SMSF which is our only source of income and we are both in the pension drawdown phase of that fund.

The combined balance of the fund is around $920,000, 80% of which is invested in shares and last year generated $14,000 of franking credit cash refunds.

We have a Commonwealth Seniors Health Card and a Pensioner concession card and receive the Seniors supplement.

The prospect of losing so much income is stressing me beyond belief so any clarification would be gratefully appreciated.

The policy was apparently aimed at the 1% of SMSF’s who have been, based on out of date 2014 figures, claiming up to $80000 of cash refunds. We hardly fit into that category and anyhow these really rich people will, under your proposal, still be able to claim refunds as since 2017 they are now paying 15% tax on fund balances over $3 million.

Once again the middle class battlers get screwed.

Thank you for reading this and I await your answer to my question.

Reply from Chris Bowen, 5 June 2018

Dear XXXX,

Thank you for your email.

Labor’s reforms to excess dividend imputation credits will remove a fiscally unsustainable tax arrangement that is seeing billions of dollars in lost revenue, making it harder for the government to fund important services and return to surplus.

Dividend imputation worked perfectly well between 1987 and 2000 when cash refunds weren’t sent to people who didn’t pay income tax. Labor will return to that system. While I understand not everyone will like it, it is necessary and Labor is prepared to be honest about our plans in advance of an election and not surprise people afterwards.

Budgets are about priorities. And to get the budget back to surplus difficult decisions need to be made. And yes, making the public case to take something off someone can be difficult, but federal Labor believes that the policy case for reforming refundability and excess imputation credits is a strong one, that it’s absolutely the right thing to do.

We have said that we’ll consult with the Australian Taxation Office, Treasury and tax experts on the implementation of this policy. However, we have no plans to make changes to the announced policy.

Warm Regards,

Chris Bowen MP

Federal Member for McMahon

Email to Cuffelinks from the reader, 5 June 2018


Here is the reply I have just received from Bowen’s office.

He does not accept than the very wealthy whom the plan is supposedly targeting will not be affected but that the low level SMSF of middle class Australians will be.

They have no intention to alter the proposal which is incredibly discriminating against battlers. They appear proud of the fact that they will stuff up the retirement of 1000’s of retirees.

[Editing note: Although Chris Bowen did not correct the statement, our understanding is that Labor's 'Pensioner Guarantee' will apply in future, exempting nearly all welfare pensioners from the policy. It is pensioners within SMSFs who have the 28 March 2018 deadline].


Wayne Trowbridge
November 01, 2018

Totally unfair to the 900.000 Australians who claim nothing against the countrys social sevices,in other words saving the country billions.This will also hit the younger generation,ie less to inherite,they vote as well .The country towns kept on the move by grey nomads will also suffer as the money won't be there to spend .This will cost my wife and myself $1400.

Chris M
August 16, 2018

I am the filthy rich person who started all this discussion with my emails to Bowen.

My purpose was to clear up the confusion as to what happens to my franking credit cash refunds when I am able to claim a Commonwealth part pension - which will under Shortens policy will happen a lot sooner than before.

I started contributing to my super at 20 yoa ie 50 years ago. I didn't benefit from the super guarantee. I was not a federal public servant who can get 15% super guarantee- on top of a generous salary

Most of my knockers totally miss the point.

Lets assume 2 part pensioners in 2020. both with say $720,000 in a SMSF and with 75% in shares which could earn $10,000 - $14,000 in cash refunds of franking credits.

one of these pensioners will, over a 10 year period, earn $140,000 more income then the other, over 20 years potentially $280000 more income - depending on how much is drawn down.

why is one pensioner so much better off.

Simply because he/she was a part pension when Shorten made his announcement in March 2018 and they will, forever, be able to grab the cash refunds

The other pensioner was not a part pensioner and will be forever banned from accessing the cash refunds.


Keep in mind all not for profit organizations can keep their cash refunds . this just happens to include union organizations.

if the cash refunds are such a toxic blight on society then the ALP should ban them for everyone.

this will never happen as Shorten knows it would be electoral suicide.

So on with the class war.

March 13, 2019

We are very similar financially and run our own SMSF we are in pension mode aged 69 and 70 already our Australian shares have taken a 15% dive due to the labour parties planned grab on franked dividends. What the Australian companies should do is pay the dividends before tax this would mean more cash in the hands assisting the economy
As people spend these funds. Will I vote labour no way did it once and we had a recession and if Shorten gets in it will happen again that is my opinion.

lindsay spooner
June 16, 2018

the person whom earns tens of thousands in franking credits will never get a pension.
the person, me, who is possibly going to get a pension relies upon the $1000 dollars in refunds in a single year and I am definitly middle class, so I would not vote for labor.

June 14, 2018

Several years ago self funded retirees were encouraged to downsize from their homes and invest more into their SMF so that they would not need social security which is the aged pension. We did this, moved into a retirement village so no longer own a home and invested in Australian shares which are almost all fully franked. Now widowed and living on the proceeds of my SMF it seems that the Labor party want me to lose a third of my income in order to pay the pensions of people who are often living in very expensive homes and drawing a part pension.. Aged almost 79 I cannot get paid work so do not pay tax although I have paid a lot during my working life. Retirees with more than $1.600.00 pay tax so they are not too badly affected. Labor wants to penalise those of who do no have so much invested but independently want no government assistance to live out our remaining years

Tom H
June 12, 2018

Alan Wilson raises a key issue - all taxpayers have the opportunity to receive the benefits of franking credits by reducing their tax bill. Pensioners paying no tax do not receive this benefit. What is the difference between a gift from the tax office to reduce your tax bill and a direct cash payment for the franking credts ? None in my book.If Labor were serious they would eliminate franking credits altogether. Time to look for a genuine independent candidate for my vote.

Dianne Maher
June 12, 2018

Giving wealthy people a tax rebate when they don’t pay tax is unsustainable.

Allan Wilson
June 12, 2018

I think Dianne has been influenced by the Labor Party rhetoric that their policy is targeted towards retirees with significant assets or incomes.The reality is that it is those retirees with modest incomes who will have the largest percentage reduction in their incomes when the policy takes effect.

The Labor Party claim it is unsustainable to pay self funded retirees with modest incomes the tax credits but at the same time they argue it is sustainable to continue paying high income earners including Malcolm Turnbull,Scott Morrison,Bill Shoften and Chris Bowen for their franking credits.

How is this fair to self funded retirees with modest incomes?

If the Labor Party had any compassion for retirees their policy would include a cap,of at least $5,000 or $10,000 for franking credits each year, to protect retirees with modest incomes and still impact on those retirees with significant assets which the Labor Party claim are the target of their policy.

Bill Donald
June 12, 2018

Labor moving the goal posts on our self funded retirement income yet again. Labor are going to lose what should have been an unloseable election!

June 12, 2018

I also wrote to Chris Bowen setting out that I was a self funded retiree with an SMFS and was concerned how my long term Pension income planning had now been put at risk, without any grandfathering clause. After 4 reminders I also received the same generic reply. It is my understanding that only Pensions paid by SMSF will not receive the franking credit refund, while all other funds will not be affected. Am I right here?
A number of my questions about how Bill Shorten was quick to play the fairness card in Parliament, and how this Franking Credit policy stacked-up with Labour's fairness policy were simply ignored. Also a request for a copy of Labour's policy document on franking credits was also ignored.
I understand that Bill Shorten, previously has said, when asked, if Labour would change the franking credits tax policy "that would be like sending in the tanks to kill a mouse" or words to that effect. Seems that mice are difficult to kill for Labor, or is it the SMSF retirees have no one to defend them? Geoff Wilson of Wilson Asset Management has a petition against this policy and I encourage everyone to sign it as in it's current form this policy is in my opinion simply not fair.

June 11, 2018

Makes you ponder whether we should be surprised. How long will it be before someone raids the Future Fund, as Malcolm Fraser did in 1977 when the National Welfare Fund (begun in 1946 with contributions shown separately on workers' personal tax assessments) was moved to consolidated revenue. It would be wroth several trillion dollars by now.

June 11, 2018

Offering franking credits is the problem. Companies exist for one purpose - to invest capital and make a return from it. Company tax is a tax on that investment so reduces economic growth and employment. The lower the rate the less harm it does. We would all be better off if companies were taxed at 15% and there was no franking. Any dividends would then be taxable - this is the way just about all the rest of the world works.

If this results in lower tax revenue then lower the $1.6 million cap. It is open and transparent and would not result in the distortions in the policy Bowen has announced which more than anything else is a vicious tax on the SMSF sector which people with their super in industry funds will not be effected by.

Allan Wilson
June 10, 2018

My experience with writing to our local Labor member for Richmond,Justine Elliot ,was the same as that experienced by earlier correspondents.I wrote in April following the announcement of the Labor Party policy and did not receive a reply or an acknowledgement so I wrote again in May with the same result.I was listening to John Laws on the radio one Thursday and thought I would ring him to raise the franking credits issue.During the discussion with him I mentioned I had written to Justine Elliot twice without a reply and he commented he was sick of politicians who chased your vote before an election and could not respond to concerns once the election was over.On the Friday morning Justine Elliot's office rang and I received a written reply on the next Tuesday so obviously they monitor comments on the radio.

The current franking credit process involves ALL shareholders being entitled to tax credits.Some shareholders receive a cash refund while the remainder use the credits to reduce their overall tax bill.

The Labor Party policy provides for self funded retirees to be excluded from receiving a cash credit while continuing to allow all other shareholders to deduct the franking credits from their tax obligations.On this basis,self funded retirees will be disadvantaged while high income earners,including Malcolm Turnbull,Scott Morrison,Bill Shorten and Chris Bowen,will continue to receive full value from their franking credits.

How is this fair to self funded retirees.If the Labor Party had decided to cancel the total franking credit system it would have become a policy issue for every shareholder which could be debated.

I believe the Labor Party policy is targeted towards self funded retirees with modest means as a method of raising additional tax from a high number of retirees rather than attack on retirees with significant incomes or assets as the Labor Party claim.

If the Labor Party had any compassion for retirees with modest incomes the policy would include a cap of at ,at least,$5,000 or $10,000, to protect retirees with modest incomes while allowing an impact on retirees with more significant incomes as the Labor Party claim to be purpose of their policy.

June 09, 2018

Questions not yet answered

A couple of questions that I would like to ask Chris Bowen (but it appears it would be pointless to do so as they would not be answered) are as follows.

1 Since the franking credit will become a non-refundable tax offset, then can we assume it will not cover the Medicare owing.

This is the case with all non-refundable tax credits. They reduce your tax, but if they cover all the tax with some over, the excess will not reduce the Medicare levy owing on your income.

The low income offset and the Senior and Pensioner offset appear to cover the Medicare Levy that would be owing, but actually they don't. There is specific separate legislation giving a higher income threshold for paying Medicare for those who would otherwise have no tax liability after application of these offsets.

2 Will the tax credits that cannot be utilised still form part of a person's taxable income for calculating the threshold for the Senior's Health Care card (currently around $86k for a couple).

Example of a couple losing out

Here is an example of an effect the proposed change will have. Our example couple has all their income from franked dividends. They do not qualify for a pension as they have more than the allowed $830k in assets, and they have no superannuation. These people pay tax at normal rates on their income. All their investments are in joint names so their income is split equally.

Between them they receive $70k in dividends, plus $30k in franking credit. Their taxable income is therefore $100k so they do not qualify for a Seniors Health Care Card.

Under the present system they owe around $17,600 tax between them. This is covered by their franking credit and they receive a cash refund of $12,400 giving them a net income of $82,400.

Under the proposed rules they would lose the cash refund of their franking and may in addition be charged Medicare levy of $2000 (2% of their total $100k income). So their net income would be $68,000, a reduction of $14,400.

However they would still have a taxable income of $100k, so they would still not qualify for the Seniors Health care card.

Remember these people are not getting any benefit from tax free pension mode super as they have none.

They decide to change their investments to trusts and etf's. As the yields are slightly lower they receive only $85,000 from their investments. The tax payable on this is $12,400, so their net income is $72,600. In addition they now qualify for a Senior's card which gives them several hundred dollars a year in savings.

Alternative ways to address the problem

On one hand we want to encourage Australians to contribute to their super to help reduce the cost to the govt of paying pensions. However if the tax break we are giving retirees on their super is higher than the pension we would otherwise be paying them, then encouraging them to save becomes a bit self defeating.

If the problem is that too many retirees are taking advantage of tax free pension mode super then the most straightforward solution is to levy some tax on pension mode super.

If all income inside a super fund was taxed at 15%, with a rebate to cover some of the tax owing by retired members (over 60 yrs old), we would be increasing revenue and at the same time making the system less complex. A rebate per retiree of the first $3000 of tax owing (so the first $20k of income was tax free) would be a reasonable start. Those with multiple funds would specify which of their funds used the rebate.

Another option would be to give everyone half of their franking credit while still retaining the cash refunds. That way the govt receives at least half of all the company tax paid.

For our couple above, the franking available on their $70k would be $15K. This would lower their taxable income to $85,000 and their tax would be $12,400 so they would receive some cash rebate. It would also reduce their taxable income so they qualified for the Senior's card. Their net income would be $72,600.

Jan H
June 09, 2018

Vaughan Munro: The envy you display towards the elderly is misplaced and shows that you are completely ignorant of the world today's so-called Baby Boomers grew up in and ignores the very generous tax cuts younger people are now enjoying,

When Paul Keating introduced his policy to eliminate double taxation on company profits the tax-free threshold was much lower than it is today. In fact, before 2000, it was $5400 or lower. In 2000, it was raised to $6000. Marginal tax rates were also much higher, which from 2000 both Coalition and Labor governments have progressively lowered. ATO figures clearly show that current retirees paid considerably more tax during their working lives than do today’s workers who, since Labor raised the tax-free threshold in 2012/13 now enjoy a tax-free threshold of $18,200. This means every wage earner can earn $18,200 tax-free, a sum well above many franking credits' cash refunds.

I went to university before the Whitlam era of free education. I was lucky to earn a Commonwealth Scholarship which paid my fees and five pounds a week income, which I lived on for four years. I started my working life as a teacher. Being a woman, I was paid 75% of a male teacher's wage. Married women had to resign, The idea of buying a house was unthinkable. Back then, single women could not get a home loan and (married) men had to save a sizeable deposit to obtain a bank loan. Interest rates were never lower than 8% and in the 80's, home loans were around 16% to 18%.

Compulsory super was only effected in 1992 which is why so many of today's retirees have such small super balances. Foreseeing a revenue crisis, perhaps that's why the Howard Govt introduced the tax free super and cash refunds initiatives. In any event, the result has been that many people over 50 started contributing as much as they could into super and because we Baby Boomers have always had to provide for ourselves - no extravagant baby bonuses, family or childcare benefits--being self-funded and independent of govt bureacracy appealed.

Labor's policy to end cash refunds for all is ill-conceived, grossly unfair (creating a class of pensioner haves and have-nots) and, as several industry commentators have observed may well lead to perverse outcomes, e.g. forcing people to exhaust their capital and go on the Govt pension. Commentators have even shown that people on govt pensions actually earn more income compared to self-funded retirees losing the cash refunds.I doubt Labor have thought this through. At the very least, they should consider means-testing. to eliminate those receiving large cash refunds.

If they really wanted to increase revenue, they could lower the tax-free threshold back to $6000. You can imagine the outcry from the younger generation. Instead, at the same time as they seek to reduce ageing retirees' income by a third (effectively a 30% tax increase), they are promising even more tax cuts for workers.

The first rule of investing is to protect your capital.

Vaughan implies that $11k is immaterial, Well, it may be so for a Millenial earning $100k p.a. But he incorrectly advises the couple to exhaust their $920k (by the way that is $410K each--scarcely a wealthy balance and barely sustainable as a SMSF due to carrying costs) because " they can go on the pension & receive all those franking credits." But the franking credits will not be given to future non-tax paying pensioners; only those on govt pensions at 28 March 2018. And that includes you, Vaughan.

Vaughan Munro
June 09, 2018

Sorry mate with an almost one million dollar super fund you are not a battler! Good grief, what alternative universe are you living on!!

Stressing because you will lose 11K franking credits. For goodness sake draw down what you have, that is the way super should work. Then you can go on the pension & receive all those franking credits.

I will lose too, however it's time we start to think about the generations to come. This inter-generation theft has to stop. You know what my vehicle number plate is? Well it's SKI86. Yes I'm a member of the ski club. Spending the kids inheritance until we are 86. Think about that!

June 08, 2018

Can someone please explain if I've got Labor's proposal wrong. The current company tax rate is 30%. People on high incomes will be well above this tax threshold as the dividend & the imputed credit will be added to their income putting them well above the 30% rate. Their benefit will be a tax offset, so in theory they will not receive a rebate/refund all things being equal. Doesn't this then mean that the low income earners are basically targeted because they will be on a low tax threshold & eligible for a rebate/refund ?

Geoff F
June 09, 2018

Yes, it is one of the consequences of the proposed Labor policy. They are attacking their own supporter base. So much for fairness and equity.

June 08, 2018

And how much is the persons family home worth with the $920k SMSF ?
Just to get the full picture.

Peter Mcdonald
June 08, 2018

One of the problems with Bowens statements is that he uses obsolete figures to justify Labors policy. That is simply duplicitous and makes me highly suspicious of their motives.

Richard Patterson
June 08, 2018

We already have a hidden death duty in superannuation. When you die you pay 16% Plus 1.5%
Medicare a total of 17.5% on the balnce of your fund. Unless you have a spouse or dependant children. How many 70 or 80 year olds have dependent children? This is a death duty no matter what spin you put on it .

Now we have the franking credit debacle. The message that is sending to people is spend..

Alan Lobley
June 08, 2018

I am a SMSF but I wasn't always. I paid a company to manage my account, so that I did not have a problem with ATO rules. The problem was that this company, just like those in the banking sector were more concerned with their fees (for little or no service).
If you have an ethical advisor who is providing good service (you are very lucky) - hold onto them. If not find someone else like I did in SMSF, now it is entirely - my call, my mistake means my problem my loss. No whinge.
If the Labor or for that matter the Liberal parties want to make reforms to the superannuation system and/or the tax system, let them do it to their super rules, wages and rorts first. Do they contribute to their fund? Can they access their pension prior to 65 years of age? How much do they receive annually? Will they pay tax on their 'income' or are they exempt?
Shouldn't all retirees be treated the same or do they remain the entitled ones, even though Joe said 'the days of entitlement are over!'? Lets face it if you are a politician you can access lots of rorts to supplement your low end 5 figure income! Poor 'polies'.
Fundie, if you cannot contribute any more money to your account and you are not sure how much you need until you die - dividends are the best option because you have to sell those shares or others to obtain the money to live. Share price is highly variable and the market often drops and rises with little justification - shorting and the like occur. How can you know what the price will be but regardless you have to sell to get your money, even if you are losing at the time!??!
I am fully self funded taking nothing from 'the system', I own my house which I paid off at a 12% interest rate while being a single parent, working and receiving no government assistance. I salary sacrificed so I could retire, so I did without to ensure I had enough money to retire. Now I am helping her to pay off a property loan because those people paying interest only loans and Governments who 'artificially' help to increase land values by controlling the amount of land available to purchase, have put most people out of the housing market. All rorts favour the richer and hurt the poorer.
I will leave an inheritance behind and see nothing wrong with that - why should I struggle and condemn my offspring to the same struggle. If more people can do this then surely more people will be better off in the future and less people will need to rely on Government provisions - wasn't this the reason for superannuation, to reduce the reliance on the pension.
I am willing to pay some level of taxation be it my income is my dividends and I will be taxed as any other income generating person or because I am in the pension phase I will pay as Michael proposed on June 7th.
I am not however a company and as such I should not be taxed at company rates - lets face it any company without franking credits has not tax o their earnings (dividends) and all have been allowed to minimise their tax obligations with 'legal' if sometimes questionable means. I need an ABN number to set up a SMSF super as a matter of law but I provide no service and have no customers - why should I be treated as a company when I cannot use company tax rules to minimise my 'tax obligation' if Labor remain 'pigheaded'.
Let the politicians show us the way by taking their own provisions to their 'razor gang' approach or do those that make the rules still live in 'the age of entitlement' and don't want others to improve their lot? Politicians control the masses - the 2 party preferred voting system virtually assures us of either a Liberal or a Labor government - democracy at its finest!

June 08, 2018

Under the announced policy the pollies including Chris and public servants who have the most generous pensions in the country courtesy of the taxpayer are unaffected.

While this is most likely an oversight in the initial policy formulation surely this privileged group could afford a 15% hit to their pensions with no backdating when the policy details are ironed out?

As Chris says it would be a difficult decision but it would reduce the surplus. Plus this measure would be much more effective in reducing government debt as a generation of future government liabilities would be instantly reduced. And as an added political bonus it would have the overwhelming support of voters both rich and poor.

It seems like a no brainer so can Chris explain how was it possible for this obvious oversight to occur?

Geoff F
June 09, 2018

Good call.
Oversight could be due to politicians taking the hypocritical oath to do no financial harm to themselves.

June 08, 2018

Hundreds of comments about franking! I can’t understand the DIY-ers’ endless obsession with franking credits. I guess it’s a function of their obsession with dividends over growth (eg clinging onto perennial dogs like Telstra) instead of finding business that use their cash surpluses sensibly to invest for real growth.

Wanna get rich? Then buy companies that invest for growth instead of taking the lazy way out and giving it back to shareholders. – eg Amazon, Berkshire, Apple (before they ran out of ideas and started paying divs instead), Microsoft, (ditto), Google, etc.

June 08, 2018

The fact is this - the current super tax regime is not sustainable and needs attention.

I don't like Labor's franking policy (as it addresses the wrong issue and creates anomalies, as others have highlighted, that don't make sense) but something needs to be done.

I, like some other super commentators eg RiceWarner (?), am a big advocate of having one tax rate on investment income across both accumulation and pension eg say 8% instead of 15% and 0% respectively. This could be phased in slowly over time if necessary eg in year 1 it goes to 14% and 1%, then the next year to 13% and 2%, etc. Once equal, no-one would need to move from accumulation to pension, they keep the one account for life. Everything would be so much easier and the "rort" of converting to pension, then selling all assets CGT free (and then even going back into accumulation if you want!!!) would disappear (I say "rort" because it only serves to undermine our tax system - that's the Parliament's fault, not ours, but it needs to go.).

And you could then still add contributions to your account even if you are in pension phase, which you cannot do now, as pension phase would sort of disappear and could be replaced by simple rules around how much (% of balance) you need to draw down each year at each age (a bit like we have now). Lots of other rules to amend under this model but it would be so much easier for members to understand, and for funds to administer.
Then dividend imputation can stay as is and everyone will be happy - and the Federal budget could be healthy into the future.

This change would mean an INCREASE in future annual net earning rates for accumulation members (the younger generation with HELP debts, no home yet, etc) and slightly lower rates for us oldies who, let's face it, have benefited greatly from a system that has been very generous to us for many years and is not sustainable. As someone who is about to sign up to pension phase, I would support this structure if it means we have a strong Federal budget.
In my view politicians need to look at the whole system and not tinker with parts.

June 08, 2018

@Michael, it is worthy of investigation. The fact that we have someone with nearly a million dollars in a SMSF, a pension concession card and a Commonwealth Seniors Health Care card thinking they would be screwed over by having to effectively pay some tax on income says that some just don't understand things need to be paid for. The Labor proposal isn't great but any will have an impact, that is the point but no one wants to be worse off.

I am looking for a system with equality of opportunity, not outcome. The present system where the tax rate differs by phase and the age of the recipient is hardly close to that. This isn't a case of taking from the 'haves' and giving to the 'have-nots' it is simply seeking to make something less generous but some clearly feel the present state is an entitlement.

Even with both of those tax rate concessions (and putting ones head in the sand that the system is largely compulsory) amended or removed there would still remain large incentives to contribute, over and above what is compulsory, given the investment tax rate inside accumulation super versus outside super.

I agree with Peter Thompson that it is a strange system whereby the amount of tax ultimately collected from a company is determined by who holds its shares and their age. I too would be happy to see a larger revision to franking credits and a focus on the company tax rate.

Alternatively we could discuss an increase in consumption tax but there will always be someone worse off.

June 08, 2018

Oh dear.... it is so very disappointing so many are influenced by rhetoric.... and political ideology.

A little research and empathy for both sides of the debate would work wonders in this discussion.

Pat Connelan
June 07, 2018

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 spending 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 entitled and forever complaining fatcat boomers.

June 07, 2018

To correct Philip's correction of Warren: we were 'promised' tax exempt income in pension along with imputation of franking credits. Now the imputation is being amputated. Those who relied on it must limp along....

Chris Pappas
June 07, 2018

BIGSTEP is on the money. We are also "self funded retirees" with a modest super income & some imputation credits & no govt handouts. In the past we have not allowed Liberal or Labor policy decisions that hit our pockets influence the way we vote & generally we voted Labor on most issues but I'll never vote Labor again seeing they are going out of their way to specifically target us & no means test mentioned.

Pat Connelan
June 07, 2018

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.

June 11, 2018

What a bizarre array of comments appear in this thread! But this dose of nonsense from Pat Connelan takes the cake. So listen up, comrade. I am no battler and have well over $1 million in my account. You know why? Because I worked like a dog for 35 years, enduring considerable self-sacrifice for myself and my family. I employed a handful of people who were then also able to be responsible taxpayers. I lived, in a financial sense, by the maxim of: spend less than you earn.

Now I am over 60, retired and living a life of catching up on the enjoyment others had well before me. I stole from no-one and I do not possess the personality cancer that is jealousy of the success of others. I saved and invested in good faith, following the rules and hoping to, one day, enjoy my prudence. And for all this, I am an "entitled whinger".

Well, believe you me, Mr/Ms Connelan, if you want to see a real whinger, take a look in the mirror. You are whinging about the success of others. It is not your divine responsibility to issue tickets to those you perceive as either rich or downtrodden. I made my own luck and yes, I was also that tertiary graduate with his bum hanging out of his pants and my parents gave me absolutely NO assistance and there was NO Newstart either. Now, do us all a favour and board the next flight to your socialist paradise destination of choice.

June 13, 2018

Well said Mark. The politics of envy are well established in this thread. Irrespective if a person has $1 million or more in a SMSF, no one should be asked to take a 30% haircut on their income that they have saved legally for all of their working life. Imagine the uproar if Bowen suggested that the CMFEU members get a reduction in income of 30% (ie the equivalent increase in tax), to help pay down debt. I agree with the writer who said that the policy is to get rid of SMSFs and force them into the Union run funds. This is just the usual socialist smokescreen that is put out to cover up an ulterior motive.

June 07, 2018

The aim of the Labor party is to take from those who have saved in order to give to those who haven't.

As Karl Marx said "From each according to his ability, to each according to his needs". Labor make no excuse for following this doctrine and see nothing wrong with discriminating against the "haves" in favour of the "have-nots". Fairness is in the eye of the beholder, evidently.

To use another quote "You never lose the vote of Paul by robbing Peter to pay Paul".
With a growing number of Paul's in Australia, Labor should do even better than the 52:48 that opinion polls quote. That is until,the communist ideal fails catastrophically, as history has proved to be the outcome. In the meantime, get ready to transfer out of your SMSF and into a union-run industry super fund.

Philip - Perth
June 07, 2018

Another quote you'd do well to remember, "Soleil" (is that a reference to the Sun King? - If so, very appropriate!) is that of Marie-Antoinette, who is reported to have said "let them eat cake." when asked what the poor would do when they had no bread... Marx was simply being practical and empathetic, whereas your attitude suggests that you believe you are somehow more worthy...why - because you are more intelligent (accident of birth) or more able??? Be grateful if you are either of those - as I am - and be prepared to share. Or didn't your mum teach you about that?

June 07, 2018

This rubbish policy is only what Labor is telling you. Death duties will be next. The ALP see the savings of the Baby Boomers and Gen Xers as theirs to tap mercilessly. They are a disgrace pitting one group of citizens against others. I hope Australia wakes up and keeps them out of power. The entire electorate will retire one day, thus this is an issue for young and old alike. Something that most media around this issue fails to highlight.

The tone of Bowen's reply was almost like they are already in power. I hope they are seen for the fools they are and are never elected.

June 07, 2018

Of course it is an issue for young and old but if tax concessions are not made now the young will pay even more later when the current old will have moved on to the other certainty in life.

I am 40, I am not sure what that makes me but I am prepared to go with less now for reform (open to all ideas) to the tax system to make it more sustainable.

I have contributed extra to super since I was 21 and still do but fear I may need to put more eggs elsewhere should a Government raise the preservation age beyond 60, an idea that has been floated, or make other changes with the same impact such as increasing the age after which income is tax free.

Philip - Perth
June 07, 2018

No one was "encouraged" to save for their retirement on the basis that it would be tax free because the are over 60! That happened subsequently and is a very (too?) generous subsidy by all other taxpayers. I am over 60 and will benefit from this overly generous tax subsidy and I would be happy to be treated as others are - i.e. subject to tax thresholds and their exemptions up to a low level and then taxable beyond that. To correct Warren's assertion: what we were "promised" was tax exempt income within the pension earnings. That is NOT being removed. Those with the top 5-10% of capital and income need to stop whinging for more... remember Mme Marie Antoinette??

June 07, 2018

What self serving comments! As educated investors I’m sure you all realise that the tax being refunded is Corporate Tax!!
Since when is it reasonable for an individual taxpayer to receive a refund of tax paid by a company?
Get over it, it is a fair and long overdue reform of a nonsensical policy.

Greg Hollands
June 07, 2018

Since the introduction of the dividend imputation system! It's how it works!

Peter Thompson
June 07, 2018

Agree with you Tony. The notion that any single dollar of corporate earnings should go untaxed makes no economic sense. (Does anyone disagree with that statement?) Labor's policy to deny refunds of excess franking credits, makes sure of this, indirectly, but is messy cludgy policy, and lamentable for the lack of courage to make more substantive, and self-consistent, reforms to the tax structure. BHP’s earnings are completely distinct to those of its shareholders. Just as BHP is a distinct legal entity from any of its individual shareholders, so too it should have a distinct tax regime.

Surely a cleaner alternative is just to dispense with franking credits, and for companies to pay out post-tax dividends with no further adjustments downstream once that dividend is in the hands of shareholders (neither more taxation from the shareholder on 47%, nor a refund for the shareholder on 0%). That way every dollar of corporate earnings is being taxed at a transparent, prescribed rate, and we can start to make headway on narrowing the inexplicable gap that exists between the 'nominal' (30%) and the 'effective' (about 10%) corporate tax rates, and make informed choices of where we want our taxation revenue to really come from.

Jan H
June 14, 2018

Paul Keating (Labor ) introduced the concept of dividend imputation to "prevent the double taxation of dividends. Previously, the company paid tax and the shareholder paid tax on the post-tax dividends received from that company. The govt benefitted from twice the tax. Under imputation system, the Australian Tax Office recognises that corporate tax has already been paid on profits distributed as dividends. This already-paid tax can be transferred to investors using franking credits, reducing their tax liability. As others explainn, the franking credit is added to all other taxable income and tax is calculated on the sum. Hence, the franking credit raises the tax owed but then the credits are deducted from the net tax owed.

June 07, 2018

No Think, you are wrong. Bowen has to justify the policy decision that Labor has made, the writer to Bowen does not have to present an alternative option to Bowen. The Labor party will be judged at the next election by 100,000's of retirees who have made personal sacrifices and accumulated retirement funds, into SMSFs, over the years to provide a comfortable lifestyle in retirement. My wife and I are self funded retirees, receiving no benefits from government and providing relief to the economy by being self sufficient. If they can make this style of attack on retirees what will they do next?

June 07, 2018

Strong statements to consider this a binary right and wrong matter. Of course the writer does not have to do anything but that doesn't make their email serve any effective purpose.

Self funded does not mean fully funded and not benefiting from the tax system.

June 07, 2018

If the laudable aim is to redress fiscal unsustainability without creating inequity, brave leaders would have tackled the limitless exemption on family homes from CGT and Centrelink; levy a modest tax on inheritances recognising the cost to society of the related infrastructure; attack discretionary trust arrangements reserved in practice for the upper strata.

Given this might cost seats and posssibly power, low hanging fruit are preferred. Warren Bird's alternative of a pensions tax would restore transparency, but do we want taxpayers to have that?

In the end, Chris Bowen has chosen to mutilate logic: franked dividends and related tax credits are yours but only if the credits do not exceed tax on income including such credits. If the ATO had the power and mindset to attack the Treasurer for formulating a sham scheme for the sole purpose of revenue, this with Part IVA anti-avoidance against logic written all over it would be it.

Translated from yes-ministerish politicalese, he is saying 'I make no apologies for being an apologist for appalling policy'.

June 07, 2018

In the meantime Governments of both persuasions introduce other indirect taxes. Industries funding regulators and other government bodies/agencies, welcome to the tax du jour!

One that has some of the worst inefficiency, new reporting so calculation can be made and justification reporting back to the industry after that. It is of course overtly, or not, passed on to the end consumers but all we hear is that our tax no longer pays for it.

June 07, 2018

Count your blessings, Mr 'Third time Lucky':
1. You pay no income tax. 2. No doubt you own your own home worth whatever '000's of dollars and pay no tax on it; 3. You will pay no death or inheritance duties; 4. You have nearly $1 million real dollars in an SMSF; 5. You get ALL the free Commonwelath and State fantastic health and concession benefits; 6. You get franking credits while paying no tax. Believe me, you are quite rich!! Rich is capital possessed, NOT income. By comparison, think of somepone on a defined benefit pension from an untaxed scheme. Receiving say a pension equal to the average annual wage of A$78,832 (ABS Nov 2017). That individual pays full income tax, less 10% rebate. of $14,605! Then, what if they do not own their own home and have to pay rent as well, after tax!

June 07, 2018

Someone on a defined benefit pension of $78,832 pa is on the gravy train. If your numbers are correct they are getting an after-tax pension of $64,227. That's equivalent to the maximum annual pension payment that anyone is allowed to get from an account-based pension, ie it's the equivalent of having a $1.6m pension account. On top of that, they took on zero investment risk in such a scheme (the end result is guaranteed by taxpayers/shareholders). If they have to pay rent, it's sad that they were unable or unwilling to buy a house at any stage, but that's not a reason to belittle the efforts of those who have worked hard and made sacrifices to do so.

June 08, 2018

I agree.

There seems to be a few contributors to this discussion who would rather attack a fellow contributor. Mainly by making totally unfounded assumptions about others contributions and circumstances and implying how lucky they are.

They don’t use ther own personal circumstances to justify their position on the matter. Most seem to only want to denigrate rather than make a sensible argument.

June 07, 2018

It's never a good sign when the public has to alert a political party to the consequences of a proposed "reform", Subsequent carve-outs, exemptions and new regulations just create further complications to a system that is already way too complex.

I have to agree with Warren. If lack of government revenue is the reason for doing this, a simple increase in the tax rates would be a more efficient and transparent way of going about it.

(Surely by now, the word "reform" in political discourse has become meaningless through overuse. Anyhow, I'm off now to check injury updates from last night's State of Origin - I may have to "reform" my tips for the weekend.)

Graeme Bennett
June 07, 2018

Are you sure Alan? My employer keeps deduction tax from my pay.

Alan Ferguson
June 07, 2018

You don't pay tax over 60
You are a shareholder in a company that effectively pays tax on your behalf
You are given a franking credit so you can recoup the tax that you shouldn't have paid
Why is this even a debate?
You don't pay tax over 60


June 07, 2018

True. Until the law changes and then you do. Whether the law should change is the debate.

June 07, 2018

I appreciate that retirees feel they have worked hard to build up their savings but they seem to forget what a privilege it is to have a tax-free income stream (let alone cash refunds from the ATO). My grandparents saved all their lives and had a few hundred thousand in the bank when they retired, but they worked before compulsory super and before this type of super structuring was widespread. They continued paying tax on the earnings from their banks savings.

This couple have $920,000 in SMSF, and I assume they probably own and have fully paid off their own house. Not exactly struggling (should be pulling in around $40-45,000 a year in dividends and interest, all of which they get as an income-tax-free earnings stream plus the $14,000 in imputation refunds), plus they get generous seniors and pensioner health concessions — I’m sure there are quite a few minimum wage workers who’d love to be in this position…

Retirees now have it better than any who went before them and probably those who will come after.

Pat Connelan
June 07, 2018

When did someone with $920,000 in an account-based pension become a "battler". Why doesn't he run down his balance? Isn't that what it's for? Or am I missing something? It sounds like he's created a structure where he's living off refunds on unused franking credits from Aussie shares. He's got an undiversified portfolio and now he's paying the price. Why should the taxpayer subsidise him??

Graeme Bennett
June 07, 2018

I am cynical enough to believe Labor want to indirectly raise taxes to buy the votes of their support base. It is what politicians do.

June 07, 2018

@Pat, exactly. Excessively above what is needed in super, at the point of retirement (unknown point in this example), for ASFA's modelling of a comfortable retirement.

Drawing down on super would be using the system as it was designed. It is not their for wealth transfer at the end of life.

Worried about longevity risk, buy an annuity.

Bill Watson
June 08, 2018

The "taxpayer" is not subsidising someone getting refunded for their franking credits. It is simply refunding tax already paid when they are in a nil taxation bracket (that is, in "pension phase").
Bowen is being dishonest in saying the retiree has not paid "income" tax. All receipts are included as "income" in the hands of a shareholder and are taxed accordingly, in this case in a nil income bracket. If Bowen believes retirement income should be taxed then he should say so and not pretend the perfectly logical and fair tax imputation is some kind of rort.

June 09, 2018

I have written to both Bowen (no reply) and Tanya Plibersek twice (first answer with links to several articles supporting their plan, the second no reply. Here is my third letter to Tanya:

Dear Tanya
I am still waiting for your reply to my email regarding my concerns over Labor’s policy to end franking credits cash refunds. In particular, I would like you to explain how creating two classes of pensioners, (those on Govt Aged and Part-Aged pensions prior to 28 March 2018, and all other pensioners – self-funded retirees receiving pensions from their SMSFs and all future Govt Pensioners) fits with your proclamations that Labor stands for FAIRNESS FOR ALL AUSTRALIANS and LABOR LOOKS AFTER PENSIONERS BETTER THAN COALITION.

As I explained, I am a relatively low income pensioner (under $50k per annum) who stands to have a third of my income cut under your proposed policy. At the same time, you plan to lower taxes for wage earners. I am over 70 so unlikely to get a job so no hope of being a wage earner. However, being a person who invests in ASX-listed Australian companies and earns dividend income from these investments, I help to create employment for people. As I recall, this was one of Paul Keating’s aims for ending the double taxation of dividend income: to encourage ordinary Australians to invest in Australian companies thus stimulating the economy. I can tell you that being a share-market investor is an active job which requires much time researching and analysing company reports. So I consider it WORK.

How is lowering taxes for workers while increasing taxes by 30% for self-funded retirees like me FAIR? You say I don’t deserve cash refunds because I don’t pay income tax because my SMSF fund is in pension-mode. However, if my fund was in accumulation-mode, I would only pay 15% tax on income earned, be able to deduct my expenses (compulsory accounting/audit and ASIC fees) and because my income averages around $26k p.a. I would receive all my franking credits as a refund.

What your policy does is to penalise self-funded retirees whose funds were in pension-mode at 28 March 2018 (and all future pensioners, self-funded or otherwise) while privileging wage-earners and people whose super funds are in accumulation-mode.

Your policy will also drive pensioners to take greater investment risks because they will need to replace their lost dividend refunds with growth shares instead of the more stable dividend-paying companies, like the big Blue Chips. This is not the time in their lives – over 70 – to be forced to take on more risk. But, you can’t live on 2.3% interest. As I said, we ordinary people don’t have the luxury of the SECURE retirement pension ex-pollies enjoy. You must realise you are extremely privileged and lucky.

Yours sincerely

Note: I understand from articles in the AFR that self-funded retirees drawing a pension from their funds prior to 28 March 2018 will not receive cash refunds unlike the Govt pensioners, This is disregarding that many Part-Pensioners with SMS funds have engineered their finances so as to be eligible for a part-pension regardless of their funds' balances.

Re: criticism of a battler: A balance of $920,000 at 2.3% interest (many banks pay less than this) generates $21160 - hardly a wealthy income for a couple. At such low interest rates, retirees are forced into the share market. Yes. they can use up all their super and then go on the Govt pension, But will that help the Budget achieve surplus?

June 07, 2018

@Think, the current imputation policy was a correction of the problems that existed prior to the Ralph review changes. This in not a policy that requires correction for unintended consequences. It is bad policy for reasons of fairness, interruptions to sensible investment decisions and it is poor policy design. It is a bad policy and it just needs to be abandoned.

If we want a bleedingly obvious area for revenue, then think about how successive governments reduce compliance activities by cuts to the ATO. Ever paid a tradie cash? There has to be a massive amount of revenue forgone for lack of compliance activity.

June 07, 2018

@Steve, clearly Labor think they need to increase revenue and this proposed measure is part of that. Lobbying needs to address that, whether the argument be that it won't actually raise the revenue (and is not equitable) or that (due to its inequity) an alternate measure is proposed but no one appears willing to put that in their submissions.

It is frustratingly nonconstructive debate where successive inter-generational reports make the case that there is a growing problem with revenue and expenditure and 'If left unchecked, this would mean drastic future cuts to payments, higher taxes, or both'.

June 07, 2018

I also wrote to Bowen about this issue and the reply I initially received was word for word identical to the one above.

So I wrote back saying he didn’t address my specific question and asked him to do so. I didn’t receive a reply so write back asking for one.

The one sentence reply I received still didn’t address my question and I considered it a condescending fob-off. To me, that spoke volumes.

June 07, 2018


At least you received a reply. I am still waiting for a reply to my correspondence dated 17 March from Bowen's office. Mind you, I did receive a response from the office of my local federal MP. May well have not bothered. It was more a brag session about the virtues of a future Labor government. Didn't directly address any of the scenarios that I presented in the correspondence.

Warren Hickson
June 09, 2018

Labor's fiddling with tax imputation credits and therefore retirement incomes just adds another layer of complexity to the tax system, is unfair and inhibits income planning. As other readers have suggested, if Labor wants to increase taxes then do it openly and simply e.g. raise the GST rate to 12% and/or either abolish or reduce other tax concessions, such as the health insurance rebate.
Give retirees some relief from these frequent policy changes which only increase complexity and uncertainty.

June 19, 2018

I am not surprised that you didn't receive a reply. No one will ever convince me that either Shorten or Bowen had a clear understanding of imputation when they announced the policy. The hastily concocted set of exceptions is just rubbing salt into the wound and indicates yet further confusion.

Warren Bird
June 07, 2018

But they're NOT going back to the pre-2000 situation. Back then charities that invested in shares didn't get franking credit refunds, but they will retain them. By the several exemptions the ALP is admitting that the policy isn't soundly based.

Once again I say, if they want to increase taxes then increase taxes. It's surely in their own interests to do that, to be overt and clear. A bad policy, with exemptions for some, but not for others, will only continue to have unintended consequences such as the one highlighted in this email exchange.

My oh my, the deception and misleading statements that this has triggered are beyond belief!

June 07, 2018

Any reasonable lobbying (one that should expect something other than a rebuttal like the above) should always propose an alternative or how it should be amended whilst still meeting the policy objective rather than 'no change please'.

It is constantly missing in articles and comments on this topic. What are the readers alternative reforms?

Or at a minimum where is the justification that someone over 60 not pay tax on income?

Warren Bird
June 07, 2018

OK, I'll have to keep posting.

The alternative, that I've written about time and time again and which I've seen others talk about too, is to increase the tax rate on SMSF pension payments. Overtly state who is not paying enough tax and go after them. Be honest, be clear and leave a very good element of the tax system alone.

And the justification for people over 60 not paying tax on income that is paid out of their retirement savings is that this is how they were encouraged to save to reduce the future demands on the old age pension. The current government has already reduced the amount of tax free income from that source people can get by the $1.6 mn cap, which seems to me to have addressed the main issue which is that wealthy people over 60 were being too generously treated.

So I reject your claim that alternatives haven't been discussed or that the issues haven't been addressed. Several of us here on Cuffelinks have been doing just that!

June 07, 2018

Thank you Warren. That is coherent and consistent with your comments to date but it is unlike the readers email to Bowen and hence the less than helpful response they received.

Graeme Bennett
June 07, 2018

It seems the issue Labor wants to attack is the tax free status of superannuation in the pension paying phase. The non-refundabilitiy of excess franking credits appears to me to be a proxy for that. It is poor policy in my opinion. It discriminates against those operating an SMSF and favours those in industry funds. This appears to be an attempt to curry favour with Labor's core constituency and also enhance the flow of funds from union-backed trustees to their unions and from there to Labor coffers.

I agree with you that exempting pension-paying funds from tax is bad policy. For that reason I have not transitioned to retirement. We should all be make some contribution when we have the means available I believe. But Labor's policy is bad and appears at least cynical.


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