Published: Tue, March 13, 2018
People | By Leon Thompson

Bill Shorten announces plan to axe tax loophole for rich

Bill Shorten announces plan to axe tax loophole for rich

Bill Shorten, ALP Leader, on Tuesday announced that if he leads the government, he will abolish cash refunds which are worth an average of 5,000 Australian dollars (3,935 USA dollars) a year to taxpayers who own shares and claim tax credits on dividends.

The Self-managed Independent Superannuation Funds Association (SISFA) said the policy "fails the test of fairness" as it will benefit taxpayers on higher incomes at the expense of those on lower incomes.

Treasurer Scott Morrison says Labor's plan to wind back Howard-era rules allowing investors to claim tax imputations from dividends is "theft", but Mr Shorten says the loophole is "absurd".

But Mr Bowen said the cash refunds amounted to "negative income tax".

Labor's plan would hit "low-income earners and pensioners" who invested their money in shares, the Treasurer said.

"It will however, cause some ructions in equity markets where tax refunds of excess imputation credits have been an important part of the investment matrix for equity investors, particularly self-managed superannuation funds", said Mr Deutsch. "I think most Australians will be surprised to know (about it)".

"It violates terribly the simple principle that if you've paid tax on something, you shouldn't have to pay it twice", he said.

Labor this week announced a proposal to remove cash refunds for excess dividend imputation credits, as a way of "improving the budget bottom line".

Tax Institute Senior Tax Counsel Professor Bob Deutsch described the policy as a "low hanging fruit" for Labor as it will require minimum legislative change, generate around $11 billion over the 2018-19 forward estimates and cause relatively minimal damage to Labor's constituency.

He said that the system was designed so that shareholders did not pay tax twice in the form of their dividend earnings and on the tax of the companies they invested in.

Shadow treasurer Chris Bowen says the changes have the approval of the original system's architect, Mr Keating.

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"The potential for ongoing tweaking throws retirement planning into disarray", ASA chief executive Judith Fox said.

"The Government should give that tax back to you, if [a company] has already had tax paid on it".

"We're saying to Australian business "if you spend, we will reward you", he said.

A company earns $100, pays $30 in tax, and pays $70 to shareholders.

The goal of dividend imputation was to reduce tax paid, and now individuals - many wealthy individuals - were getting a cash bonus, Labor said. This is called dividend imputation.

Most workers have incomes that are high enough to ensure they still pay tax after the dividend credits are counted.

Self-managed super funds now gain the most from the scheme, with some funds getting more than $2.5 million in tax refunds every year.

The Coalition policy cost the budget $550 million at the time but the bill has blown out to $5.6 billion a year because of the rise in the number of shareholders and dividend payments.

"Let me repeat that: a small number of people will no longer receive a cash refund - but they will not be paying any additional tax".

In 2000/01, the Federal Budget was billions of dollars in surplus and the economic outlook was strong.

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