Labor has already announced a death tax – but everyone missed it.
The announcement relates to imputation credits:
A Shorten Labor Government will make the tax system fairer by closing down a concession that gives cash refunds for excess dividend imputation credits.
Labor will have a Pensioner Guarantee – protecting pensioners from changes to excess dividend imputation credits.
The Pensioner Guarantee will protect pensioners who may otherwise be affected by this important reform.
A Shorten Labor Government will close down the concession created by Howard and Costello, and return to the arrangement first introduced by Hawke and Keating – so that imputation credits can be used to reduce tax, but not for cash refunds.
This change only affects a small number of shareholders who have no tax liability and use imputation credits to receive a cash refund.
People will still be able to use imputation credits to reduce their tax liability to zero.
While those people will no longer receive a cash refund, they will not be paying additional tax.
More than 92 per cent of taxpayers do not receive a cash refund for excess imputation credits, and won’t be affected at all by this change.
Australia is the only country in the world with refundable franking credits.
Labor is cracking down on this tax loophole because it will soon cost the budget $8 billion a year.
Much of this goes to high-wealth individuals, with 80 per cent of the benefit accruing to the wealthiest 20 per cent of retirees.
The top one per cent of self-managed superannuation funds received an average cash refund of more than $80,000 in 2014-15.
Labor does not think it is fair to spend $8 billion a year on a tax loophole that mainly benefits millionaires who don’t pay income tax – not when school standards are falling and hospital waiting lists are growing longer.
$8 billion a year is more than we spend on public schools or child care. It’s three times what we spend on the Australian Federal Police.
Charities and not-for-profit institutions, such as universities, are exempt from these changes.
The policy will apply from 1 July 2019, which means it will only affect future earnings and franked dividends that start flowing in following financial year.
Hold, on! How’s that a death tax?
Easy … follow the money.
So you’re a retiree living on investments. Part of the income you rely on – and have structured your affairs around – is the current franking credit regime.
Let’s use this example from the SMH on 2 May 2019:
Consider retirees Alan and Bev, both in their 80s. They have a modest home worth $400,000, a 10-year-old car, a caravan and a small amount of cash that they hold for emergencies.
They have built up a nest egg of about $800,000 in a share portfolio they hold jointly.
Their assets are too high for them to receive an age pension, so they live off the dividends from the share portfolio of $32,000 a year, and a refund they receive from excess franking credits of $13,000.
Their total income is $45,000 a year.
According to the Association of Superannuation Funds of Australia, the required annual income for a modest retirement is $39,775 and a comfortable retirement requires $60,977.
While Alan and Bev aren’t living much more than a modest lifestyle on $45,000 a year, they feel like they are good with their money but need to keep a close eye on their expenses.
However, Alan and Bev will end up with less than the full age pension if Labor’s policy to end franking credit refunds is enacted.
It would remove their refund of $13,000 from franking credits and leave them with just $32,000 a year in income – a reduction of 30 per cent.
So, now their income is too low to live on.
What options do they have?
Well, they’re in their 80s. How much longer could they live? And what are they doing with that $800,000.
If they lived on their capital, they could live well and blow the lot (assuming they die before the last dollar is spent).
How’s that a death tax?
Because the cost has transferred from the government (imputation credits) to the heirs. The cost of the imputation credit being removed isn’t paid by the retirees, it’s paid by their heirs.
They have just paid a death tax.
And no one noticed.
Here’s Chris Bown explaining the policy on Q&A.
What matters are the real world implications of the policy. As such, it’s a death tax. Paid by the heirs.
— ABC Q&A (@QandA) May 1, 2019
Yes, this is silly, but you may get a LOL from it
And yes, it’s gotta be fake. But if you get a laugh from it, does it matter?