The Labor Party has made changes to its controversial dividend franking rebate policy, in a bid to make the policy fairer. It has not satisfied its critics.
Labor issued a “pensioner guarantee” to protect pensioners from its proposed changes. The guarantee is that pensioners and allowance recipients will be protected from the abolition of cash refunds for “excess” dividend imputation credits.
Self-managed super funds with at least one pensioner or allowance recipient will before March 28, 2018, will also be exempt from the change.
Last month, Labor announced that it would cancel rebates for excess franking credits, arguing that they were unaffordable and largely a tax perk for the wealthy.
It says 90 per cent of all cash refunds to super funds accrued to SMSFs in 2014/15 and that 50 per cent of the total benefits go to the wealthiest 10 per cent of SMSF balances.
Critics of the policy point out that a large number of self-funded retirees on modest incomes and part-pensioners also get the benefit franking credit rebates. Labor’s latest move is designed to make its policy more targeted at wealthy retirees.
Reaction to the change has been mixed. The SMSF Association says the policy shift is “a step in the right direction but still leaves more than one million Australians unfairly disadvantages by its proposal.”
SMSF Association chief executive John Maroney says similar protection should be afforded to self-funded retirees and not just pensioners and allowance recipients.
“Under Labor’s amended proposal, the only SMSFs exempt are those that currently have at least one member receiving an age pension,” Maroney says.
“In future there will be no protection for SMSF retirees who may need part government support to supplement their superannuation income.
“This would create an unfair, two-tiered and complex treatment of SMSF members who access the age pension in retirement.”
The Tax Institute says the current dividend imputation model is “theoretically sounder”, ensuring all corporate tax distributed to shareholders only bears tax at the relevant shareholder’s marginal tax rate.
“The main problem is that it is expensive,” the Tax Institute says.
The Institute says Labor’s proposed model “operates on the premise that all company tax is final, irrespective of who gets the dividend. Thus, 30 per cent company tax will be paid even by a zero-rate shareholder.”
It says this model has its own problems, most notably that it will unfairly disadvantage SMSFs as against large funds. Those larger funds can offset excess imputation credits against other income, which many SMSFs, as currently structured, cannot do.
