How do franking credits work?

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On the simplest level, respected economist Saul Eslake compared the winding back of a cash refund for franking credits with slapping a tax on blue cars but not on cars of other colours.

That the mooted proposal by Labor leader Bill Shorten discriminates against investors who own shares was poignantly highlighted by broking house Motley Fool General Manager Scott Phillips. He illustrated the controversial policy to withhold tax paid on dividends thus:

“Consider three people, all of whom have self-managed superannuation funds in pension phase, and who – according to the current tax rules – pay 0 per cent tax: Banking Betty, Rental Richard and Dividend Davina.

Banking Betty deposits $100,000 into an account and earns $2000 each year in interest. Betty doesn’t pay any tax.

Rental Richard has a $100,000 property with a tenant who pays him $2000 each year in rent. Richard doesn’t pay any tax.

Dividend Davina buys $100,000 worth of shares that earned a profit of $2000. The company paid tax of $667 on her behalf, so Davina gets $1333. Davina doesn’t pay any tax.

See the difference here? Because Davina’s investment is in the form of shares in a company, she gets less than the other two. Even though she’s not supposed to pay any tax, the company (subtracted) tax on her behalf, so she gets less.

Under current rules, she’d get the $667 back (as a cash refund from the Government), delivering on the current policy of a 0 per cent tax rate, and equalising the return for each of those investors.

Bill Shorten, in effect, is penalising people for owning shares.”

What should be a straightforward process has now been dissected and analysed by so many vested interests that not only has the Opposition Leader backflipped somewhat after howls of protest, but the issue appears even more complex to the layperson.

Mr Eslake told YourLifeChoices that he believed the refund was no less inequitable than negative gearing, which is a boon for property owners who are able to write off losses from  owning investment properties.

He also agreed with analysis claiming that retirees on modest incomes were not likely to miss out on too much if they did not receive refunds.

“If these people are identified, it would be fairly easy for a government to make sure they were not worse off,” the independent economist said.

He said there were other solutions that could reverse a situation where those on modest incomes were penalised, and at the same time curb the ability of wealthy retirees to receive the cash refunds while avoiding tax on income from their superannuation.

“Caps could be put on the total amount of rebates from unused franking credits and they could apply to everyone,” he said. “That way, no individual can get more than they were notionally entitled to.”

Mr Eslake was scathing of the raft of tax concessions, bonuses and other benefits that had been created during the years in which John Howard and Peter Costello were at the helm. Among those concessions was a requirement that the Australian Taxation Office convert the franking credits into a cash refund for investors on a marginal tax rate of zero.

“Mr Costello also introduced an exemption that allowed Australians aged over 60 to withdraw huge amounts from their superannuation, tax-free.

“This dumb rule has given rise to the situation where you can collect a generous stream of income from your super fund, and because you don’t have to pay tax on withdrawals, in other words your marginal tax rate is zero, tax paid on your dividends can be refunded to you.

“Much confused debate has resulted from Mr Shorten’s idea because commentators, politicians and others are exploiting the fact that people are not understanding the difference between taxable income and total income.

“Australians are taxed on their taxable income, not their total income. Retirees over 60 years of age who are self-funded are considered to have no taxable income, because withdrawals from their super fund are tax-free.”

Since Mr Shorten announced his franking credits plan, he has continued to emphasise that retirees on modest incomes would not lose out on the tax cash back.

 

Opinion: Choose carefully which golden egg-laying goose to kill

It’s no surprise that average Australians, those still working and those already retired, are infuriated with revelations that wealthy, self-managed superannuation fundmembers are drawing a tidy, tax-free sum from their nest eggs and collecting big cash refunds from the taxation office.

But as explained over the past week by some experts, the real poke in the eye is not that dividend taxes paid by a company on behalf of their shareholders is refunded, but that some of those shareholders benefit greatly from other concessions applied to their total wealth.

Fairfax economics editor Ross Gittins says those concessions are growing at a much faster clip than the Age Pension payments and “robbing” the budget of forgone taxes.

So before killing the goose that lays golden eggs for very wealthy retirees, it is worth ensuring that you’ve got the right bird on the chopping block. That is, there are many other measures that can be wound back first to level the playing field for retirees.

Withholding franking credits from taxed dividends would likely not be a great leveller, because proportionately, it would hurt the hip pockets of less well-off retirees more than wealthy retirees.

Having said that, many experts joining the debate are saying that retirees on modest incomes will barely feel the sting of having their franking credits withheld because they just aren’t rich enough to own the number of shares required to generate large dividends.

“The tax-free threshold is $18,200, which means you would probably need a share portfolio worth around $1 million to create that size income from dividends,” says Paul Drum, the Head of Policy at peak accounting body CPA.

“If you own that amount of shares, you are hardly going to be a poor retiree,” he told YourLifeChoices.

“In any case, a smart investor will not have those shares outside of their superannuation fund. The smart retirees have their share investments inside super because when they withdraw money from their fund, it isn’t taxed at all.”

And there’s the rub – there are many lawful ways smart investors can dodge paying tax. Perhaps those strategies and concessions should be clawed back by governments first in a bid to ensure that the very wealthy are paying their share.

Refusing to hand back tax already paid by those on a zero marginal rate is not the way to fix the problem – the problem being that there are too many avenues the wealthy can take to avoid paying tax.

Do you believe shareholders are entitled to franking credit refunds? Do you think there are too many concessions for wealthy retirees?

All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. 

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Written by Olga Galacho

197 Comments

Total Comments: 197
  1. 0
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    We just heard that Australia has a 50 Billion Dollar black economy. Bill Shorten finds it easier to go after the elderly and steal from their hard-earned pension fund. We have a small SMSF and we will be hurt. We are not sure what to do, sell our Australian shares and buy shares in countries which do not regard anyone over 65 as a criminal? What will Shorten do next! A super tax on wheelchairs, a walking stick levy or will he start digging up graves to recover gold from the teeth of the deceased?

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      He’s only going after rorters, levelling the playing field. Good on him!

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      spot on comment!

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      By all means, sell your Aussie shares, Ok. But instead of buying others, spend the lot if you can on things that give you pleasure and join Knows-a-lot on his level playing field. Have done exactly that a while ago. You are still allowed to have some dollars and can collect a
      reasonable fortnightly pension.

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      Yes , Ok Bill Shorten is a thief and liar.
      It will not only be the wheel chairs, it will be your house that he will want you to sell , downsize and live off what’s left after agents fees and stamp duty . At the same time he wants to take the exemption of income from tax in our superannuation funds , he has exempted the union base super funds , where is the fairness in that .. none and that’s why I call him a liar
      So the retirees who saved and topped up their super with contributions that have been taxed at marginal rates or 15 % when going into accumulation , pay 30 % tax on the dividends before they are distributed will have the tax refunds cancelled . the whole purpose of superannuation was to provide tax free retirement incomes and that is commonly known , This pricicipal was the reason why taxpayers invested their life savings and hard earned into super funds Ok after Shorten takes the Gold from your teeth
      we still have our super balances required to pay 17 % extra witholding tax before it goes to beneficiaries Enough is enough of Aged penioners complaining when they get everything tax free and tax payer funded Ok probably best to spend the lot now and go on the Government teat

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      Sorry, Knows-a-lot, but you are sadly mistaken. He is NOT hurting the wealthy, who have plenty of means of circumventing the loss. But he IS crucifying poorer SFRs.

      Here’s a REAL scenario. Homeowner retired couple are achieving an income of $37500 a year from superannuation assets just over the asset threshold. They get no pension, so the tax man gains some $36000 to $40000 a year depending on the value of concessions. $4500 of their income is in franking credits. Under Shorten’s proposal, their income will reduce to $33000 a year, and they will effectively be handing the tax man up to $44,500 a year by the loss of franking credits plus loss of pension. Does that sound reasonable to you? How many people do you think would accept a tax of $44,500 a year on an income of $33,000?

      The strong incentive for these folks is to spend their super on a bigger house and claim a full pension and that will hardly be good for the nation. There are thousands in this situation.

      Furthermore, the policy will hit EVERY Australian worker whose tax rate is less than 30% – but NOT the majority of those who pay more than 30%. So it’s a tax ON THE POORER – NOT THE WEALTHY.

      It’s been cleverly designed and dishonestly but convincingly presented, sadly. Please don’t believe the lies.

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      It’s amazing even after reading the article people still think pensioners are rorting the system, I wish someone could make it clear to all. Here is my situation My wife and I have a few shares, twice a year we get paid a dividend, on the statement I get there are two amounts, one is the dividend I receive the other is the franking credits that I don’t receive, the franking credits are the amount the company pays the government in tax on my behalf, at tax time when I have to declare my income I have to include both amounts even though I haven’t actually received the franking credits because they have gone to the government as my tax liability on the income I have earned on my shares, now when I do my tax my total income from all sources including my pension is less than the tax free threshold, so I am therefore entitled to a refund of the tax I have paid through my franking credits, just as any other tax payer is allowed to do. My refund is usually between $250/$300 this is the amount Shorten wants to take from me. So if anyone thinks this is fair, you would have to also agree that all tax payers who have paid tax during the year but then end up with an income lower than the tax free threshold should not receive any of that tax back.

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      You got it, Jim.

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      Good comment OK. Maybe mention that the current government is the one which has come after retirees with a vengeance, not Shorten.

      I would be very surprised if SHorten did not tweak this policy to be fairer to those earning zilch. Once that happens the policy will be spot on.

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      It amazes me more, Jim, thaqt after reading all that has been written some people still think the SFRs who worked their guts out and paid hefty taxes to DONATE $36000 a year (if a couple) the taxman are ”rorting” by asking for their OVERPAID TAX to be refunded.

      How much more do these greedy selfish monsters want to take? While they happily justify claiming a pension, saying they are ‘entitled” (I agree, by the way!), they are happy to see SFRs deprived of BOTH the pension AND a fair refund of OVERPAID tax.

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      You make no sense OGR as your home owning couple would get very little OAP even if they were just below the asset cut off point. They could only have $380,500 to get full pension. If they have even a little more than $837,000 then they are badly invested if they only earn $37,500. That’s only a return of less than 4.5%. They would be earning nearly twice that if well invested. If they had $500,000 invested in fully cranked equities they would lose about $15,000 if their franked credits were not refunded.

      My biggest problem i s keeping under the threshold to keep my full pension as I earn more than
      I spend.

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      BigBear, the average investment return is 5% – government figures. Take costs out of that and it’s easy to get down to 4.5% – or less. Of course those just under the threshold get very little pension. That’s not relevant to the argument that those who sacrifice pensions to be self-funded or largely self-funded are being OVERTAXED.

      You seem to think that if someone is honest and ethical and contributes to the nation’s wealth, but is poorly invested (probably due to inherent disadvantage limiting their knowledge or capacity to tolerate risk) then it’s okay to steal their savings. But if they are happy to be dishonest and manipulative, then they should get a benefit. No wonder the country is stuffed!

      But my point is that if Shorten’s GROSSLY UNFAIR TAX is implemented, more people will do what you are doing and there won’t be any savings. The cost of the OAP will skyrocket and eliminate any tax savings, and the tax savings will disappear anyway as people move to other investments.

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      Gee so those super fund figures with returns of about 10% were bogus. I don’t think so as I earn more than that on what I have invested myself so much so I have trouble staying under the threshold to keep my full pension. Just booked another overseas trip for my grandkids.

      Personally I doubt Shortens proposal has any kegs at all so I’m not worried about it at all. I do however wish the media would employ someone that is economically literate on how franking credits work instead of the garbage they are publishing about it.

      Just with what I have invested I receive a refund of about $5000 in franking credits each year. So you don’t have to much money invested well to lose on this proposal. It would not surprise me that many people would not even realise what was in their tax refund cheque.

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      Members of retail and institutional super funds are complaining that they don’t get franking credits and saying they didn’t know, until now, that they should. Of course they ARE. They just can’t see them. So hundreds of thousands are stupidly supporting Shorten’s proposal believing his BS about it hitting the wealthy when they themselves will be hurt by it and are not even literate enough to know that.

      If you booked another trip for your grandkids, BigBear, the money should be counted as an asset for 5 years. You can’t just buy gifts to stay under the threshold. But clearly you have no conscience about cheating any way you can. The sad thing is that more and more are being pressured to cheat and manipulate as you do because everyone is attacking SFRs who are honest and ethical, demanding they be stripped of their savings.

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      No problem booking a trip for my grandkids with Centrelink as long as you do it by the rules.

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      What rules allow you to GIFT to your grandchildren and it not be counted, BigBear? NONE. There is a very tight limit on gifting and over that you lose pension entitlements for five years.

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      Well I don’t have any problem with my grandkids using my travel account and Centrelink don’t either.

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      @VeryCaringBigBear and OG, can you tell more how to you can gift to grandkids without falling foul of Centrelink. Is travel a special category? Both of my parents want to gift the grandkids to give them a hand up but are understandably cautious.

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      I give away lots of stuff but don’t have anything to do with Centrelink.

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      The rules state that you can spend money on anything that benefits you. Making my grandkids happy benefits me so it is not a gift.

  2. 0
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    It’s clear the rich are getting away with blue murder. All power to Mr Shorten!

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      WRONG WRONG WRONG WRONG WRONG, Knows-a-lot. This is going to hurt poorer Australians badly. The rich – no problem. They’ll just restructure their affairs to recover the loss

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      Not to worry OGR – Knows-bugger-all is still dancing with Electricity Shorten on his level playing field.

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      Knows-a-lot, you and Trebor are amongst the few who are making any sense. People are either being emotional and talking rubbish or abusing other people commenting. Labor is looking into any hardship that may be done to pensioners any way. They have proposed a policy beating LNP to the punch and now they are sifting through people’s reactions and checking if there is any hardship being caused. There are pensioners renting and even homeless so they need to be helped first. No one is to be forced to live below the pension amount which they have said over and over. There could be some LNP people on here paid to stir as they are on Facebook. People need to do their own research and not be like Trump voters who believed every bit of rubbish that helped put him in the White House which the world now has to deal with.

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      There could also be some labor people on here doing exactly what you are suggesting, the whole argument is whether the tax paid on shares should be allowed to be claimed back if your income is below the tax free threshold, anything else being commented on is to misdirect that argument and is a ploy used by all political parties to divide people, and in this instance they are doing a great job.

    • 0
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      Knows-a-lot – you know absolutely nothing! Short-on ideas know even less than you! His plan is going to hurt hundreds of thousands of ‘little guys’ and the big guys will work out an effective strategy to circumvent his attack, anyway. How many small share holding, older Aussies will liquidate their share holdings (classed as an asset by Centrelink, in terms of calculating OAP entitlement), blow the proceeds on expensive holidays, and then be eligible for higher OAP payments, because they have reduced their asset base? The net effect is that the cost to the taxpayer will increase, and the budget deficit blow out further. I see/hear he is now backtracking a little, because this scenario has been brought to his attention. Well why not think it through in the first place, before scaring the horses?

    • 0
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      Kathleen, you are a lovely person and have a good heart. That’s clear. But you are sadly mistaken. This policy will RUIN Australia. And you are wrong about who it hurts. It will force thousands more onto pensions by reducing their income to the point where they are paying 150% or more to the taxman and their income is well below the aged pension. It will hurt all working Australians who pay less than 30% tax. They are NOT the rich. The rich WILL NOT HURT. Most of those earning enough to pay over 30% tax will NOT suffer.

      No, that’s NOT LNP propaganda. I don’t support the LNP at all. I wanted to vote Labor, but this proposal will destroy the nation.

      Yes, we need to care for the homeless and the very needy first and foremost. To do that, we need a HEALTHY ECONOMY in which people can afford to spend to stimulate growth and jobs, there are incentives to strive, and people can afford to pay the taxes that facilitate a strong welfare system. What Shorten is doing is wiping out all the benefits of working, saving and planning, reducing ALL retirement savings for lower income earners, increasing demand on the pension, and redirecting investment away from Australia or into property.

      We need PROSPERITY, and Communism doesn’t deliver it. Neither does misplaced socialism. We need RESPONSIBLE CAPITALISM – a strong tax and welfare system with integrity and fairness, and a strong incentive to work, save, plan and invest. That will NEVER be achievable while those who work and save are pushed into hardship with GROSSLY UNFAIR TAX POLICIES.

      Like the man said, it’s like taxing everyone with a blue car and not those with a red one. We NEED investment in Australian companies. If we drive investors away, wrongly thinking we they have too much and need to be punished for their success, we are driving away all opportunity to return to prosperity, and we are condemning future generations.

      I care too much for my grandchildren to let fools stuff up our country with dumb socialist policies. I’m really sad that you can’t understand what harm you are doing to younger Australians by letting a communist attack break drive economic decline.

    • 0
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      If I earn $20,000 a year I pay no tax but I get a refund of $5000 in franking credits. If I earn $100,000 my tax is $25,000 but I have $5000 in franking credits so I pay $20,000 in tax.

      Shorten wants to not give the refund of $5000 to me if I earn $20,000 but takes $5000 off my tax if I earn $100,000.

      Now if you think that is fair you have rocks in your head.

    • 0
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      Thank goodness for someone with a brain at last. But I despair of some of those blinded by envy seeing past the trees and into the wood.

      Wake up Australia. This policy will hurt the POOR – not the rich. Like most underhanded schemes politicians cook up, it’s a gross deception intended to give their rich buddies a benefit while conning the nation into thinking they are doing good for the common man.

    • 0
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      Jim, people are telling other people who not to vote for! There is a thread about elections flowing through here. People do not even know what will happen. They are guessing. Why not wait to see actually will occur rather than guessing and panicking and spreading panic. Much more water to flow under the bridge before anything will be passed into law.

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      Kathleen, it would be helpful if Labor stopped hiding their policy and economic workings. Then we might know where we stand. At present, a lot of people are justifiably frightened. They have been hurt badly by cruel changes to the assets test and they are struggling. They fear a further attack.

      And it doesn’t help when people like you imply that they are ”rorting” and/or support Shorten’s attack.

      How selfish can some people be? These folk worked their guts out and paid hefty taxes to be in a position to DONATE $36000 a year, or more (for a couple) to the needy by not claiming a pension. Now, despite their very low incomes, some very selfish folk want the government to take MORE. 30% More than other retirees pay in tax. 30% more than the law says retirees should pay. 30% more than is fair. In some cases much, much more than their earnings. effectively forcing them to GIFT all their hard earned savings to the government to hand to people who, in some cases, are far better off and enjoyed a better lifestyle but manipulated to claim a pension.

      Ultimately, these people are supporting pensioners. And a lot of greedy, self-serving pensioners are screaming for their blood. Why? Oh, ”because it’s not FAIR that they should have savings and we don’t”. Well it’s not FAIR that pensioners should get a handout of up to $1 million while workers and savers are tormented and deprived.

      Many SFRs support pensioners in their claims of entitlement AND their calls for a better deal. The least these pensioners could do is show appreciation for the sacrifice SFRs made to help the nation’s budget and STOP BLODDY YELLING FOR MORE. You are being brutally unfair and cruel. They have given enough. They deserve to be left alone to enjoy the income they earned TAX FREE, LIKE THE REST OF WORKING CLASS AUSTRALIANS.

      (Please note, I’m not talking about the rich. I support taxing high retirement incomes. But working and lower middle class retirees should NOT be overtaxed just because a large portion of their income comes from share investment. After all, investment in Australian shares is GOOD for Australia. And Shorten’s policy – as it’s been presented to date – will strip poorer SFRs and part pensioners of their income and tax them unfairly. So if you want people to ”wait and see”, show a little support for them and stop supporting attacks that are generating fear.)

    • 0
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      Knows-a-lot I get the full OAP and to get it I have to stay under $380,000 in assets. Now as I don’t want to get 2% on my money at best I invest $300,000 in bank shares instead. My biggest problem here is if my bank shares go up not down as I lose part of my OAP. Now I earn 9% (It is currently closer to 10%l) which gives me a grossed income of 27,000. That includes franking credits of $8,100 that are refunded to me. If I only had $100,000 invested my franking credits would be $2,700.

      So instead of having my money invested badly on deposit and earning $6000 I invest it in the bank instead and earn $27,000. No tax is paid as I am under threshold being a couple. However if I now don’t get my refund of $8,100 I am paying tax of 30% on my income of $27,000 and only receive $18,900 of that income.

      IF you think this is fair you have rocks in your head.

  3. 0
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    I think the three examples are skewed – firstly if you invested $100,000 in to super your return would more likely be $12,000 (not a bad return). The second example for him to get the miserly return of $2000 on that investment he would have to charge a weekly rental of $40 per week (a ridiculous investment return). The third example, did Davina knowingly put her money in to private shares because of the double dipping arrangement and by choice not putting it in to a super fund from which she could draw a pension then that is her bad luck. I can’t afford to own private shares and neither can any of my friends who are all on the aged pension so to me it is only the wealthy that this will affect. No one has said that they still have their original investment of the shares and the dividends they get so they are jumping up and down about a rort that Howard/Costello brought in to help their mates and thus trying to buy votes. Use the superannuation arena as it was meant to be used and this won’t have any implications on you at all.

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      So the politics of envy strike again, just as Shorten wants to perpetuate the myth of the rich pensioners, I get a tax refund of about $250/$300 this is the amount that I have paid to the government as my tax liability for the earnings on my few shares, my total income falls well below the tax free threshold, so like any other tax payer I am entitled to claim that tax back, why are so many people on this site trying to demonise the pensioners that are receiving this legitimate refund, just as any other tax payer is entitled to do. I can only assume that it is jealousy that some pensioners are getting a few hundred dollars more than others, here’s a suggestion, go out and do a bit of work just for a few months a year, once you have payed a few hundred dollars in tax stop working, make sure you don’t earn over the tax free threshold then at tax time you can claim the tax back that you have paid, so you will end up with a few extra bob each week you are working, then at tax time you will receive a nice little amount back, just as I do from my earnings from my shares.

    • 0
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      Seadove you could afford to own private shares if that was what you chose to spend money on. You chose to spend on other things instead.

      And Superannuation averages around 5.9% so the return on each $100 000 is just short of $6 000.

      If a couple your pension and discounts would have cost you around $700 000 so you are wealthy except the taxpayer is forking out your returns while the SF retiree you are dumping on chose to save that money for themselves because the Government convinced them it would help and the government lied.

      The examples were purely so you’d realise the tax had been paid already by someone who didn’t have to pay any.

    • 0
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      I am not in a couple Rae, I am on my own and for twelve years I was working two jobs, seven days a week to keep my head above water so whatever I am pulling in a part pension has been well and truly paid for by the extra tax I had to pay for working the two jobs. Have any of you worked two jobs just to stay afloat, I’m thinking not. Do not demonise us battlers saying we are getting welfare when we have well and truly paid our taxes over our entire working life. What I chose to spend my money on was food, bills, petrol, utilities and bringing up my son so no Rae there was no leftovers for buying shares. I do not smoke, I do not drink and I certainly do not do drugs. If you think that going to the cinema occasionally is choosing to spend my money on other things then you are a hard arse. Not sure which super fund you are looking at but mine averages out at 10% for the last five years, the little bit I have in there. If people chose to buy shares outside of super then you take the risk which is now coming back to bite.

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      Excuse me, Seadove. I’ll match you any day of the week when it comes to working my guts out for very low wages and struggling and going without to save. But I managed to achieve enough that if I stop work I would be barely self-sufficient – and paying ONE HUNDRED AND FIFTY PERCENT TAX UNDER SHORTEN’S BULLSHIT SCHEME.

      Yes, you worked for your pension. So did I. But I can’t get one. I am robbed of the pension I worked for because I went without a great deal to save. Now I’m being robbed of my tax credits as well. Simple solution though. Just buy bigger house or give my savings to my kids and claim a pension. Why should I bust my gut to be self-sufficient while pensioners abuse me and want me robbed, overtaxed, and cheated out of everything I worked for. And they are really, really silly, because forcing more like me onto pensions will raise the cost of the OAP and reduce the chances of it being increased.

      Pull your head in, Seadove. You are NOT the only hard worker in this country, and you are demonising other workers who are actually HELPING you and your ilk by staying OFF the pension. You want them deprived of their livelihood and forced onto pensions. That’s DUMB. Sorry!

      And BTW. If you have super, you HAVE SHARES and YOU WILL LOSE INCOME. Wake up! Shorten is short-changing YOU, but he’s a smooth talker and obviously you can’t see through his lies.

      This is nothing to do with people buying shares outside super. It will impact ALL shareholders on lower incomes. Those most likely to escape hurt are the wealthy, because they can rearrange their affairs to adjust. (And just by the way, if I’d bought my shares outside super, I wouldn’t be losing. It’s because they are INSIDE super that I will suffer a massive loss.)

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      Ah had to pay.. PAY mill owner to go to job!!

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      I’m still working and earning, so if I had bought shares outside of super, I could claim my franking credits to reduce my tax bill. Since they are INSIDE super, I can only claim about half my credits.

      When I retire, my income will fall from moderately comfortable to well below aged pension level and my tax bill will INCREASE by $4500 a year unless I sell out of shares and stop investing in the growth of Australian businesses, diverting instead to foreign investment.

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      We are on a full OAP and own about $300,000 in fully franked shares and get a refund of about $8000 in franking credits. So it is a fallacy that those on full OAPs can’t own shares.

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      Either you are assessed under grandfathering provisions, or you are cheating, BigBear, because you DO NOT get a full pension with $300,000 in shares – even with no other assessable assets. The reduction isn’t huge, but there IS a reduction. I ran the C/link calculator today to verify. You are below the assets limit, I think, but deeming applies to reduce the pension under the income test.

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      OGR that is why deeming is so good for those who use it well. I am deemed to earn a max of 3.25% no matter how much I earn. As I have a partner we each get some of our assets deemed at a very low rate but can earn as much as we like on them.

      We get the full OAP each.

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      You are obviously cheating, BigBear. I know all about deeming, but with $350,000 in assets you DO NOT GET A FULL COUPLE’S PENSION. Near full, but NOT full – unless you are claiming single pensions (which is probably the case given what a cheat you are!)

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      We can have $380,500 in assets before own OAP is reduced. So as long as we are under than twice a year on our review dates we are playing by the rules. That is then deemed and is below our real income.

      Looks like Shorten will be backing down on this and all pensioners will have their franking credits refunded.

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    As long as Australians fail to realize that Labor = equals COMMUNISM, than these evil anti-establishment Socialist will dupe most people in to believing in them!
    Time to rid us of all left wing politicians!
    Nowhere in the world has communism worked, so why do they think it will work here.
    TIME TO DELETE all Socialists from politics.
    We should have a TRUMP!

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      I’d hate to see the kind of world you want to live in Kali-G. I didn’t vote for either of the main parties at the last election but I know that politics from the centre is a much better option that what you are espousing and no we do not need another Trump……

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      Trump is a socialist of a kind – so are the Liberals and even the Nationals. EVERY viable government has a combination of socialism and capitalism – and it is only when one or the other gets out of control that things go off the rails.

      Besides – communism and socialism have nothing to do with one another – communism is just another example of a society ruled absolutely by a self-appointed elite, the same as any laissez-faire capitalist society is – socialism is between the two and acts as a moderating influence on both.

      Trump is by no means returning his nation to the good old days of the company store and blatant exploitation of workers for a pittance and a life of pain, misery and early death – he is working on restoring industry and such so as to BENEFIT the working classes, and thus businesses local etc – a clear example of trickle-UP to the middle classes rather than of waiting for the Godot of trickle-down from the ‘upper’ classes.

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      yes Kali-G , Shorten and the unions are communists and socialists Wake up Australia they will have your house soon

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      It’s been the Communist LNP that’s been pushing for pensioners to down-size and thus incur a ‘centrelink debt’ for having too much, and who’ve been pushing for people to expend all their assets before getting the pension they already paid for.

      Bloody Communists the lot of them – at least Trump is a National Socialist, who puts Nation before Internation and utilises Socialist principles to set in place needed change in economy and society.

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      Yes Trebor. Labor always was communist, and now the once capitalist LNP has turned commo as well. We are stuffed!

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    Again – wait a minute.

    It seems to me that this is misleading – the examples given are of very small shareholder returns = $2000, and the intent and aim of Shorten’s posited idea (that one he seems incapable of selling) was to catch the big ones who ‘should’ pay more tax than the company pays on shares, i.e should be paying MORE than 30% on income – and it is only those who would be caught by Shorten’s scheme, and the rest would still get a return.

    The difference is primarily that the big tax payers can reduce their tax burden by use of creative accounting etc, and there lies the real issue with shares.

    Surely this could be viewed in another way as well – you could simply say this is a case of personal choice in where and how you invest – same as you accept a job that pays less than another for whatever reason, or pursue a career path that is not as remunerative as something else. Caveat Emptor.

    Equalising income from investment in this ways seems to me the ultimate form of socialism, when the entire idea of investment is steeped in capitalism. For example – if I invest $100k in shares in a venture and it fails, do I get a guaranteed return?

    That’s a big NO. And yet that is the logical extension of all support of shareholding – every dollar put into shares of any kind, to be treated equally, needs to be guaranteed a return the same as every other. Obviously this is unsustainable and flies directly in the face of capitalist enterprise, and renders shareholding just another socialist government business with all shares rendered of equal value regardless of all other factors (shades of the old Soviet ‘every worker is paid $10’ regardless of all other factors thing that did the rounds years ago – hello!).

    I had another point to finish with there, but a combination of headache and rambling on above has lost it for the moment.

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      Hopefully Turnbull gets his corporate tax reform bill passed and corporate tax rates drop to 20%
      Up yours Shorten

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      More opportunity to profit-shift and offshore so no tax is paid here.

      Not a good idea when most don’t end up paying the going company tax rate now.

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      More dividends to the shareholder and less for the lefty loonies like Shorten to steal

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      Somebody calculated that a drop in company tax would result in lower dividends…..

      I’m interested to see your working….

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      If this starts mucking with shares the companies will simply stop dividends, invest in the company or buy back shares and the cash will be classed as capital gain and discounted by 50%. It’s a slippery slope and Shorten is foolish even going there.

      People will be very annoyed if a sell off before the election causes rumpus to their Superannuation. Fooling with the Markets is dodgy indeed.

      I’m thinking of moving out of the ASX into International markets with less sovereign risk and I expect it’s on a lot of investors minds now.

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      Yes Rae. My partner is pushing to sell all our shares and managed funds and move into property and precious metals.

      We are sliding down the slippery slope fast, and both LNP and Labor are making sure the slide is steep and rapid.

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      Corporate tax rates will drop to at least 15% and companies will decrease their dividend pay out rates so a lot of the proposal gains will not eventuate. Companies will start issuing bonus shares in lieu of dividends to those who can’t use the franking credits as well. Not much to be gained here Bill so you better start looking elsewhere.

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      It will take a little bit more work but I will just turn my dividends into capital gains and not worry about getting my franking credits back.

      Capital gains are tax free if super is in the pension phase too.

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    What are these “too many concessions” for wealthy retirees ?????
    It’s the same bloody concessions available to all
    In fact retirees who do not have sufficient super are the ones getting welfare handouts and discounts all over the shop

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      Put simply -it is the taxation regime that permits profit-shifting from one source of revenue to another, rather than viewing each profit in isolation, taxing it first, and only allowing deduction for re-investing the capital left over after tax.

      ONLY the wealthy can afford to have profit-shifting, along with the creative accounting that goes with it.

      And at every step, where these wealthy retirees have control, even by proxy, of companies etc, these wealthy accrue benefits such as freebies, travel, cars, drivers, and so forth and even cash – none of which are available even as tax concessions to the ordinary working person or the ordinary retiree.

      How do you imagine Kerry Packer could have a taxable income of $25k and live as he did and spend/invest a million a week at the races?

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      Trebor – thanks for the Tax Avoidance 101 lecture

      However specifically – what “concessions” are available to the wealthy ?????

      Besides the $100k p.a nonconcessionl super top up , I don’t see any

      And my point is , the less wealthy are given pension handouts and a host of other benefits

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      Once you get past the idea that pensions are a handout, you may begin to have a point.

      Your politics of envy is showing… obviously you feel some are getting a free ride while you are not…..

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      Trebor, objective analysis reveals that ALL working Australians whose tax rate is LESS than 30% will lose under this proposal as will poorer self-funded retirees. Those who pay more than 30% – higher income earners – will NOT lose. It’s NOT what is being presented by the lying Labor Party at all.

      Read my post about the couple with an income of just $37500 who will lose $4500 a year, and end up with $33000 in income while handing the tax man $44,500 a year by forfeiting a pension and paying unfair tax on their share income.

      This proposal is WRONG on every level. Politics of envy? You bet. With false and fraudulent claims that people who own shares are rich. Countless thousands rely on dividend income to survive retirement either without a pension or on a part pension. Almost all employees have shares through their super. ALL WILL LOSE. And experts have calculated that the tax saving will evaporate within 2 years and within 5 years the change will impose a cost due to heavier drain on the pension system and less spending.

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      TREBOR that handout would cost you around $700 000. So theoretically every pensioner couple have been handed savings of $700 000 when the rest of us saved the money ourselves and now get accused of being “wealthy”.

      How come we get nothing ever?

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      OGR, I agree that Labor’s proposal will adversely affect pensioners and part pensioners and it has not been thought through properly. However, your couple with a draw down income of $37,500 are choosing to only draw down this amount, to presumably preserve their capital. I don’t feel sorry for them. Also, it is ridiculous to continually refer to the money that they are missing out on because they don’t get the OAP. They don’t qualify, just as I don’t qualify for other benefits like Family Tax Benefit, but I can’t say I’ve saved the Government money because they don’t have to pay it to me. Now I will sit back while you start screaming at me
      With your upper case posts. Remember, the Asset thresholds were changed by the Liberals and the Greens.

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      That’s if all dividend imputation is included…. I understood Shorten did a little back-step there and sought to cover that. It’s part of the strategy a party uses….

      Hit ’em BIG… if they react against it, fall back to your second spot… if that doesn’t carry – move to your third position…. and so on.

      As I said elsewhere on this discussion – you need to look down the road a few steps for what they are actually aiming for.

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      Sundays, of course my couple can draw on their savings. By doing so, they are effectively gifting all the holidays, restaurant dinners, new clothes, new cars, nice furniture, etc that they went without to save to people who lived a better lifestyle but didn’t save. How is that fair or reasonable? They have a RIGHT to their capital, because they went without to save it. They should NOT now have to pay 150% tax because they were responsible and diligent, while those who weren’t enjoy handouts. And if people find they are handing all their savings to the taxpayer and getting no gain, they will stop saving and investing and all go on the pension. I wish pensioners good luck then!

      And yes, they ARE saving the government by not claiming a pension. Every $36000 a year that does NOT have to be paid because someone saved to self-fund is benefiting the nation. But apparently selfish green-eyed monsters want to stuff the country by ensuring that nobody has a reason to work or save, and everyone understands that it’s far more beneficial to live it up and put your hand out.

      Yes, I know LNP and Greens changed the assets thresholds. That’s why I say we are all doomed. I wanted to support Labor, hoping they would offer more responsible management, but they are worse. They are finishing the job the LNP started. And I doubt it’s because they are stupid. I’m betting there’s a sinister motive that is driving them to WANT to wreck the economy, and they are just cleverer than the LNP in disguising their evil deeds.

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      Your view of saving, and going without, to then get to retirement and continue to deny yourself is not shared by everyone. I know plenty of retirees who are happily spending the kids inheritance. It’s their money and they can do what they want. In this instance these people are no different to those who spent up big along the way. In fact, for many paying off the mortgage, educating the kids while saving what they could was all about enjoying retirement. Its not a new concept and not influenced by the Government changes. This is where green eyed monsters exist as people watch their friends going out, and having lots of holidays. It’s probably one of the reasons the asset threshholds were changed even though I agree they got it wrong.

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      Sundays, we didn’t plan to save to go without in retirement. We saved planning to be comfortable in old age and have money for health care and aged care and home maintenance and home help – and yes, some to enjoy. What upsets me, and many, is that having planned in accordance with the laws, we are now cheated of all that we saved for. Why is our lifestyle choice any less valid than that of those who chose to spend more earlier in life? Why should we be robbed now of our savings while those who spent more get handouts?

      And please don’t tell me about paying off a mortgage and educating kids. I did that, AND paid out in excess of $100,000 (in the early 70s, when that was several houses) in medical bills for a child. And I did all that AND saved on a single minimal income. But now greedy selfish pensioners who lived it up want me deprived of all that I earned by that sacrifice and call a refund of my overpaid tax a ”rich man’s rort”. Disgusting!

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    Kali _G yes the Bill Shorten tax grab om imputation credits plan is pure communism and many labour politicians are ex union socialists beholden to the current union leaders hell bent on capital distribution and wasteful government spending with higher and higher taxes , as for the Greens they just give our taxes and money away for no return . What great alternatives we have

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      Reality Check – bizarre when you note that it is the incumbent government that has raised the national debt by twice and a bit….. for nothing but rising costs to the consumer and a lowering standard of living.

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      total garbage Trebor .
      Rudd , Gillard , Rudd stuffed it and spent it before Abott came in , Your memory is very selective

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      and your response fred is typical of the right wing crap that comes out of LNP voters. Even after being in power for six years they still blame Labor because that’s all they’ve got, they don’t have any outstanding policies to talk about so it always comes back to Labor bashing. Always has been that way and always will be.

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      You can’t get people to look at simple facts and figures sometimes…

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      And your response, Seadove, is typical of the ignorant and unthinking rusted-on Labor supporters and green-eyed monsters. Fred is right. You are wrongl This will NOT hurt the rich. It will stuff the retirement of poorer self-funded retirees, forcing them onto the pension, and it will hurt every Australian worker whose marginal tax rate is below 30%. The extra pension costs from crippling SFRs will cancel a lot of tax saving, and the drop in spending will stifle growth which will reduce jobs and tax revenue. Enjoy poverty mate. Your heroes policy will guarantee a lot of Australians suffer it. And watch the deficit GROW AND GROW AND GROW.

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      But if your marginal tax rate is less than 30% you will still receive a refund….

      Abolish dividend imputation and let the company pay its own taxes and the individual pay theirs.

      Too complicated… and I was lead to believe by discussion here that the reason for dividend imputation was to preserve 30% of dividend against company failure or malfeasance. So if you receive your 70% – and that 30% extra did not add up to a taxable income – you lost nothing.

      I can’t see how your taxable income would rise above the income tax level, OGR…. why is your income not split in a partnership of husband/wife (don’t use those terms near QANTAS) if all your income is derived from personal strands?

      Half of $37500 is not a taxable income, so you would not lose your dividend imputation.

      Perhaps the answer lies in considering what is genuine retirement income and what is not… a ceiling on retirement income before it is deemed taxable is perhaps the only approach.

      Always, BTW, be wary of the first position political parties put forward – usually it is an ‘ambent claim’ and is designed to move your towards the result they really want.

      In this case, it would appear to me that Shorten & Party are seeking to develop a ‘demand’ for a ceiling on tax-free income across the board so as to get into Robin Hood mode if and when elected.

      Believe me, the back-room people sit in whiskey fume-filled rooms for days to work out these strategies…. at your expense……

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      Seadove, you overlook the amount of legislation that the LNP have attempted to introduce, which has been blocked in the Senate by the Green/ALP oligarchy – legislation that was targeted at reducing the deficit, CREATED by Rudd/Gillard/Rudd. This is the travesty of our current democratic system – we the electors vote for a party to form a government, based on the policies put to the people at election time, and then these wallies thumb their nose at the will of the people, and oppose for the sake of being obstructionist. They haven’t got the country’s interest at heart – just their own selfish, greedy short sighted ambitions

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      They have formed a government in the lower house, Al – and are governing only as far as they should. That’s how it works.

      There is NO mandate for total control by the lower house,for good reasons.

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      Trebor, you are missing something. If a married couple own a home and have $830,000 in assets, they get no pension. That effectively gifts $36,000 PLUS the value of concessions to the government. It’s ”tax” in another form. I’m not complaining about that. I prefer not to rely on the taxpayer. But it’s still true that it’s effectively a ”tax”. A pension is nothing more than a rebate of tax. It comes out of the taxpayer purse and it’s paid to people who earn below a set limit, so it’s a rebate.

      Now, the people who are getting that rebate are saying that those who DON’T get it, because they invested in shares, should NOT GET A REBATE ON THEIR OVERPAID TAX on share income. Geez! Bloody pensioners want it both ways. Give me MY rebate, but DO NOT let them have their much smaller rebate, despite them doing good for the country.

      And by NOT getting the franking credit rebate, the investment income, that is generating only $33000 a year, this SFR couple is being taxed $4500 a year, despite being way below the tax threshold for retirees and below aged pension level. This couple can’t split their income for tax purposes. It’s income via superannuation. The split is pre-determined and irrelevant. The tax is indirect, paid before the income is paid. The crime is that they don’t get it back.

      Sorry folks, but I’m rapidly losing sympathy for selfish pensioners who want THEIR rebate, but want to deny hard working savers a far LESS generous rebate. But then, maybe these selfish dunces think it would be better for all SFRs to go on the pension and blow up the OAP system? That’s where it’s headed if the ALP has its way.

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    Evidently as I own a small parcel of shares to provide a very modest income I am now considered “rich” by Bill Shorten. This is news to me. His socialist policies will hurt a lot of people who have provided for themselves and do not want to take any government benefits. Also fed up with the labelling of people on these posts calling you greedy when they have not a clue on your circumstances.

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      If you own a blue car you must be rich and should be taxed extra.If you want to avoid tax,sell the blue car and buy a red one.Blinkers Bill likes red cars.

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      Not so, Angelique – Shorten specifically said this was designed to catch those with excessive dividend imputation who were also receiving a tax return, when their nominal tax rate should have meant otherwise.

      If your entire income strand put you in a 32% bracket, you would owe 2% more in income tax… if it is 28% you are entitled to 2% return.

      Not hard.

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      Sorry Trebor. I usually agree with you but you’ve got it wrong in this case. Angelique IS considered rich and will suffer, as will hoards of people who struggled to provide for themselves in retirement and simply cannot afford the huge loss this inflicts on them. Read my example about the couple losing $4500 a year. I could point to hundreds of similar examples.

      God help us all if large numbers switch to property of foreign investment to avoid an unfair loss. The current policy is FAIR. The failure to tax high retirement incomes is the problem – NOT the franking credits. Shorten’s policy taxes people with no taxable income – at high rates in many cases. It’s WRONG.

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      Read above, Rainey – usually there are more things twixt heaven and earth than are dreamt of in your philosophies, Horatio….

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      Circum, I am sure BS has a fleet of red cars and will never have to struggle to pay bills unlike some of the pensioners he sees as a soft target.

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      If Circum is self-funded, Angelique, he worked hard and paid tax to DONATE $36000 a year (if married) to the needy. How much more are you selfish greedy people going to demand he hand over? Will you not be satisfied until he’s broke?

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      Excuse me OnlyGenuineRainey, I have no idea if Circum is self-funded but I certainly am on a very modest income, so do not call me greedy. You really have no idea about my circumstances and should not be so judgemental.

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      Sorry, Angelique. But your comment about BS seemed to reflect greed or envy. I withdraw any comment that offended. I see now that you are among those Shorten is attacking. Sadly, there are many here who are happy to take pensions but want to rob the people whose hard work and sacrifice contributes to funding welfare. It’s apparently not enough for us to work our guts out and pay taxes all our lives, AND give up around $1 million in retirement that is handed to others, but want to deprive us of our fair refund of overpaid tax as well. When is enough going to be enough? When everyone is broke?

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      No offence taken OnlyGenuineRainey,we seem to have the same point of view.

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    The scheme was never intended to pay cash back to people who dont pay any tax. Howard changed the scheme as one of his bribes for votes schemes. Companies pay too little tax in Australia anyway, and there are very few low income earners who can afford shares. This whole thing is a beatup, especially when you consider that one on seven Australians live in poverty, they are the ones who need help not cashed up retirees.

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      Which part of – tax refund – don’t you understand

      The franking credits are the amount of tax already paid on your behalf by the company
      Same as withholding tax taking out of your pay or bank interest

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      .. and if your marginal tax rate is 37% – you owe… simple.

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      Um, news flash, Mikecrook. Nearly all Australian workers are invested in shares through the super, and those on tax rates lower than 30% – the LOWER INCOME EARNERS – will ALL lose.

      If you are a PAYE worker and your boss deducts too much tax and remits to the ATO, would you expect to get the overpayment back? I think so! So why should a retiree who is OVERTAXED not get a refund? You are being grossly unfair, and showing complete ignorance of the way the tax system is supposed to work.

      And have you noticed that poverty and homelessness is INCREASING? That’s because politicians on both sides are robbing the working class and middle class to feed the rich. And Shorten’s policy does precisely that. It takes from the workers to give to the wealthy. It’s just been dressed up well to deceive, and clearly he’s doing that!

      We will relieve poverty by making the nation more prosperous. That means MORE investment in Australian companies – not less. It means MORE rewards and incentives for people to work and save and be self-sufficient in old age, not bashing them into hardship for being successful. A nation of prosperous people can afford to support the needy. A nation of paupers deprived of their savings cannot.

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    Saul Eslake is a left leaning midget among real economists
    Wouldn’t give him the time of day

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