Labor Proposal to Eliminate Franking Credit Refunds
Example 1: Self-Funded Retiree, Anna
|
Interest |
$20,000 |
|
Dividend |
$700 |
|
Imputation Credit |
$300 |
|
Taxable Income |
$21,000 |
|
Tax Payable |
$0 |
|
Refund Imputation Credit |
$300 |
This credit has arisen because the company actually earned $1,000 and paid $300 company tax on Anna’s behalf. This is refunded because Anna does not pay tax.
Example 2: Bill, who loses his job in December, unable to claim Centrelink due to spouse income levels. Salary was $80,000, but only earned $40,000 in the six months of employment.
|
Taxable Income |
$40,000 |
|
Less Tax Withheld ($369 x 26 weeks) |
$9,594 |
|
Take Home Pay |
$30,406 |
|
Actual Tax Payable (on $40,000) |
$8,674 |
|
Tax Refund |
$920 |
Bill’s refund is a direct result of his misfortune in losing his job mid-year. The tax was being withheld as if he was going to earn $80,000 for the whole year.
In each of the examples above, the actual dollars involved are probably less than one nights travel allowance for our politicians, but on a relative basis, the tax credit or tax refund would be highly valued by a pensioner or an unemployed person.
The prospective Labor Government has a stated policy to disallow refunds of imputation credits. It is apparently all about fairness.
If that is the case, logic would dictate that tax refunds should also be disallowed. Tax withholding seems no different to the company tax withheld on behalf of the shareholders in the form of franking credits.
If you are likely to be affected by the tax proposals, it may be worth voicing your concerns to candidates now, in the hope Labor will revise this flawed policy before the election.