“Example – low taxable income A self-funded retiree
couple has a $3.2 million super balance, plus their own home, and $200,000 in
Australian shares held outside super. Even after drawing $130,000 a year in
superannuation income, and $15,000 a year in dividend income, they would report
a combined taxable income of $15,000, and pay no income tax at all.” [Australian Labor Party, Fact Sheet, 2018]
In 1987 the Hawke Labor Government introduced
legislation which changed taxation law regarding dividend imputation/franking dividends.
In order for
tax on dividends not to be paid twice – once by the company issuing the
dividends via underlying company tax on profits and once by the shareholding
receiving those dividends – it introduced franking credits. Whereby the tax on dividends for which the shareholder has previously been liable was credited to them for use
in a given financial year to offset all or part of their tax liability for that
year*.
Any excess
franking credits could not be used as there was no shareholder tax liability
remaining to which these credits could be applied and, therefore no chance that
any dividends were being taxed twice.
In 1997, 1999
and 2000 the Howard Coalition Government
changed the rules on franked dividends until by July 2000 excess franking
credits became fully refundable and a great many shareholders began to receive cash
tax rebates from the Australian Taxation Office (ATO) for taxation that they had never personally paid.
Based on ATO
2014-15 figures people
earning more than a million dollars a year received 17 per cent of franking
credits and about half of all franking credits went to those who earn more than
$180,000 a year.
According to a study by the Australian Institute reported in 2015; the wealthiest 10 per cent of households – those earning disposable income of more than $207,000 – gain almost 75 per cent of the $10 billion in franking credits siphoned directly to them.
According to a study by the Australian Institute reported in 2015; the wealthiest 10 per cent of households – those earning disposable income of more than $207,000 – gain almost 75 per cent of the $10 billion in franking credits siphoned directly to them.
CommSec
explains the
franking credit system this way (retrieved 4 February 2019):
Dividends are paid out of profits which
have already been subject to Australian company tax which is currently 30%.
This means that shareholders receive a rebate for the tax paid by the company
on profits distributed as dividends.
These dividends are described as being 'franked'. Franked dividends have
a franking credit attached to them which represents the amount of tax the
company has already paid. Franking credits are also known as imputation
credits.
You are entitled to receive a credit for any tax the company has paid.
If your top tax rate is less than the company's tax rate, the Australian Tax
Office (ATO) will refund you the difference.
Case study: James
receives a tax refund
James owns shares in a
company. The company pays him a fully franked dividend of $700. His dividend
statement says there is a franking credit of $300. This represents the tax the
company has already paid. This means the dividend, before company tax was
deducted, would have been $1,000 ($700 + $300).
Come tax time, James
must declare $1,000 (the $700 dividend plus the $300 franking credit) in his
taxable income. If his marginal tax rate was 15%, he would have paid $150 tax
on the dividend. Because the company has already paid $300 in tax, James will
receive a refund of the difference, which is $150.
If James was in a higher
tax bracket he may not have been entitled to a refund of any of the franking
credit, he may even have to pay additional tax. However, if he is a low [taxable] income
earner, it is possible to be refunded the full amount of the franking credit…..
Refunding of excess
imputation credits
The refund applies when
your total imputation credits that are attached to your franked dividends paid
exceeds your basic income tax liability for the year.
A cash amount can be
refunded to you reflecting the amount of excess imputation credits, after
applying them and any other tax offsets to which you are entitled to. This will
in turn reduce your basic income tax liability to zero.
If you are required to
lodge an income tax return, you can use it to claim a refund of excess
imputation credits. If you are not required to lodge a tax return, the refund
is available on application.
In other
words, if “James” after deducting all other tax concessions available to him
finds himself with zero tax liability then since July 2000 he has been able to claim
a cash tax rebate from the ATO on tax he has never personally paid.
There are an
estimated 1.1 million shareholders receiving this type of rebate on a tax they
haven’t paid and they are currently costing the Australian Government well in
excess of $5.9 billion each year.
That’s billions of dollars that should rightly remain in Treasury to help cover the costs of things like national infrastructure, defence, health, education, aged care, pensions and other social services.
That’s billions of dollars that should rightly remain in Treasury to help cover the costs of things like national infrastructure, defence, health, education, aged care, pensions and other social services.
In 2017 the
Labor Opposition announced that if it won government in 2019 it would return
the franking credit rules to their original intent and no longer allow excess franking
credits to be realised as ATO cash tax rebates – with
the exception that shareholders who also receive a Veterans Affairs or
Centrelink full or part age pension or an allowance would still receive a full cash tax rebate for their excess franking credits commencing July 2019.
Whenever Prime Minister Scott Morrison, Treasurer Josh Frydenberg or one of his other cabinet ministers and backbenchers like the MP for Goldstein Tim Wilson open their mouths on the subject of excess franking credits they are very careful not to let truth escape their lips - until such time as they get found out.
A case in point is Tim Wilson's financial interests. A subject which became sensitive once his irregular behaviour as Chairman of the Standing Committee on Economics'
Inquiry into the implications of removing refundable franking credits became public knowledge.
This is a snapshot of a part of his financial interests. As a 50 per cent holder of equity in at least two investment/superannuation funds which may benefit from excess franking credits:
A case in point is Tim Wilson's financial interests. A subject which became sensitive once his irregular behaviour as Chairman of the Standing Committee on Economics'
Inquiry into the implications of removing refundable franking credits became public knowledge.
This is a snapshot of a part of his financial interests. As a 50 per cent holder of equity in at least two investment/superannuation funds which may benefit from excess franking credits:
 |
| Register of Members Interests- 45th Parliament - Tim Wilson, excerpt February 2019 |
Tim
Wilson is
also an investor in funds run by Wilson Asset Management, a firm founded and
chaired by Geoff Wilson with $3 billion in funds under management… Under an entry listed as a
'shareholding', Mr Wilson's register of parliamentary interests shows he and
husband Ryan Bolger invested in a Wilson Asset-managed fund in May 2017 through
the couple's self-managed superannuation fund. They invested in another Wilson
Asset fund, WAM leaders, in December 2017.
It has been further reported in mainstream media that Chairman & Chief Investment Officer of Wilson Asset Management, Geoff Wilson, is in fact a relative of Tim Wilson and, that during one public hearing Geoff Wilson gave evidence before Tim Wilson as inquiry chairman and neither declared their personal or financial relationship.
Indeed, Tim Wilson could now be considered ethically compromised in his role as Chairman of the Standing Committee.
Wilson is a politician whose statements and opinions on excess franking credits cannot be trusted, heading a a parliamentary inquiry whose formal report and findings cannot be trusted.
So it is up to every voter to acquaint themselves with the facts. Make Internet search engines your friends between now and the May 2019 federal election if you want the facts on legislation and policy which is being debated in the media.
It has been further reported in mainstream media that Chairman & Chief Investment Officer of Wilson Asset Management, Geoff Wilson, is in fact a relative of Tim Wilson and, that during one public hearing Geoff Wilson gave evidence before Tim Wilson as inquiry chairman and neither declared their personal or financial relationship.
Indeed, Tim Wilson could now be considered ethically compromised in his role as Chairman of the Standing Committee.
 |
| Australian Parliament, House of Representatives Practice 6th Edition |
Wilson is a politician whose statements and opinions on excess franking credits cannot be trusted, heading a a parliamentary inquiry whose formal report and findings cannot be trusted.
So it is up to every voter to acquaint themselves with the facts. Make Internet search engines your friends between now and the May 2019 federal election if you want the facts on legislation and policy which is being debated in the media.
