Bill Shorten, when justifying Labor’s proposed removal of the full reimbursement of imputation credits, was quoted on radio on Friday 23rd March as saying “If you don’t pay income tax you shouldn’t get a tax refund”
Firstly, the obvious point if you are getting a “tax refund” then by definition you must have paid some tax so this statement is misleading at best.
Or perhaps Mr Shorten arguing that if a company pays tax on your dividend before you received it as a franked dividend “you don’t pay income tax”? If so then to take this to another level, If your employer deducts PAYG tax from your pay before you receive the net pay does that mean that “you don’t pay income tax” so you also “shouldn’t get a tax refund” even if your personal circumstances entitle you to a lower tax rate?
The imputation system is fair in that anyone who receives a franked dividend ends up paying tax at their marginal rate provided they have supplied their tax file number Under this proposal there would be exception – if you are on a lower marginal rate you are still taxed at a 30% for franked dividends
So Jack, an SMSF Pension Member who has paid tax on contributions and earnings all his life, met all the legislative requirements to be entitled to a tax exempt pension receives a $100 dividend but after tax ends up with $70 and can’t claim back the tax. That’s not fair.
Frank, in identical circumstances invests in term deposits. There is no tax deducted by the company and the whole $100 is passed on to Frank.
So Jack pays $30 tax and Frank pays $0. That’s not fair
If a certain class of members is getting a tax benefit then this should be addressed – as was done by introducing the $1.6M cap. A tax system should treat all members in a similar situation equally. This proposal would tax those that invest in shares higher than those that invests in other investments. That is not fair.