How to avoid Shorten's plan to abolish the refund of excess franking credits

[HelloU]

Again I am confused by terminology..................reading between the lines......I think you are making this point using a person that has super in pension phase....and is withdrawing $150K in a single financial year from this account (will assume as minimum required drawdown - otherwise would be better to use outside super capital), and has some other investments outside of this super that produce income (hope I have interpreted correctly as otherwise the term tax free does not fit).

If so, then be aware that the tax free threshold for this person for their out of super investment income starts at about $32K, then rises to $45K before falling back to $18K if they exceed the tax thresholds at $45K. It does NOT start at $18K like the tax free threshold does for most taxpayers. These figures are threshold numbers...that relate to outside super income levels for peeps who drawdown on their super but do not get a govt pension.

 

[HelloU]

Only writing this cos I read a lot of examples of explanation that use examples that do NOT exist in the real world. Or lack so much detail I am unable to determine if they are accurate or not.

 

[sptrawler]

Of course it bothers me. I can see no good reason why super income should not be taxable. Can you ?

Well on the same note, why shouldn't a pension be taxable?

 

[SirRumpole]

Well on the same note, why shouldn't a pension be taxable?

I believe it is to an extent.

https://www.smh.com.au/money/is-the-pension-included-in-my-annual-income-20121023-282hz.html

 

[Junior]

I believe it is to an extent.

https://www.smh.com.au/money/is-the-pension-included-in-my-annual-income-20121023-282hz.html

An Account Based Pension paid from super benefits, is not taxable.

I think that article is referring to Centrelink Age Pension.

 

[SirRumpole]

An Account Based Pension paid from super benefits, is not taxable.

I think that article is referring to Centrelink Age Pension.

Well, I don't see why income from any source should not be taxable. Have a generous tax free threshold to protect low income earners and anything over that is taxable.

That way the marginal tax rates can be reduced.

 

[Darc Knight]

Pension income is classed as Taxable Income but you get a Tax Credit for it at the end, if I'm right.

 

[Value Collector]

It really disturbs me that someone on $150k tax free super with $18k dividend income won't get a refund.

What disturbs me is that the proposed legislation targets franking credit refunds, while leaving the owners of rental properties free to earn money tax free,

So the legislation would only hit a portion of the people you wish to target, while it also hits alot of other people in the crossfire.

It would be very easy to make legislation that only targeted the people you want to hit, focusing on one asset class is silly, especially if the bulk of the people that are affected aren't the people you actually want to hit.

 

[SirRumpole]

What disturbs me is that the proposed legislation targets franking credit refunds, while leaving the owners of rental properties free to earn money tax free,

So target negative gearing as well. That's another of Labor's policies.

 

[Value Collector]

Well, I don't see why income from any source should not be taxable. Have a generous tax free threshold to protect low income earners and anything over that is taxable.

.

I agree, I think all income should flow through and be taxed at your marginal rate.

But I am 100% against double taxation.

However I am fine with super having its own tax rules.

 

[SirRumpole]

But I am 100% against double taxation.

AS pointed out before companies are separate entities from the shareholders and therefore taxing both is NOT double taxation.

I agree, I think all income should flow through and be taxed at your marginal rate.
However I am fine with super having its own tax rules.

Those two statements are mutually exclusive.

Superannuation is income and should be taxed at marginal rates and not have "it's own rules".

 

[Value Collector]

So target negative gearing as well. That's another of Labor's policies.

the simple fact is that the legislation will still allow the group they claim they want to target to earn all sorts of other income tax free, it is only targeting one group, and hits a lot of innocent people.

Why would you be happy with a legislation where say 90% of the people affected were innocent and only 10% were your target group, while a large chunk of the target group are missed?

 

[SirRumpole]

the simple fact is that the legislation will still allow the group they claim they want to target to earn all sorts of other income tax free, it is only targeting one group, and hits a lot of innocent people.

Why would you be happy with a legislation where say 90% of the people affected were innocent and only 10% were your target group, while a large chunk of the target group are missed?

I believe Labor's proposal is to "grandfather" the current arrangements so that people who are NG'ing now can continue to do it , while in the future people will have to invest in new properties in order to NG.

That was the purpose in NG in the first place, to increase housing supply, but applying it to existing properties turned it into a middle class tax rort.

 

[Value Collector]

AS pointed out before companies are separate entities from the shareholders and therefore taxing both is NOT double taxation.
.

And as I pointed out that is silly, it is double taxation.

it can even be triple or quadruple taxations when companies own other companies.

Imagine this situation.

You own a company called "sir rump investments", it owns shares in "Coca Cola", "Coca Cola" owns a 50% stake in a micro brewer called "Beer co", "Beer co" has a bit of spare capital invested in 'BHP".

BHP earns $100 - $30 tax = $70 paid to "beer co"
Beer gets the $70 - $21 tax = $49 paid to "Coca cola"
Coca Cola gets $49 - $14.70 tax =$34.30 paid to sir rump investments
Sir rump investments gets $34.30 - $10.29 = $24.01 paid to you.
You get the $24.01 - $10.80 tax (45%) = $13.21 left for you to spend.

So out of the original $100 earnings that were attributable to your holdings in BHP you paid $86.70 tax.

Thats same $100 of earnings was taxed 5 times.

The current system is much fairer, in the current system franking credits would flow through all the layers and the $100 would be taxed on your tax return at your tax rate, meaning the high income earners tax would be capped at 45% and rest would pay less and maybe get a refund for the lowest earners.

 

[SirRumpole]

You own a company called "sir rump investments", it owns shares in "Coca Cola", "Coca Cola" owns a 50% stake in a micro brewer called "Beer co", "Beer co" has a bit of spare capital invested in 'BHP".

So this situation exists in all but 3 of the countries in the world without dividend imputation and they accept it as a fact of life.

 

[HelloU]

complicated yes,
some thoughts:
1. super imo is more like 10% of your wage being put in a 'bank account' that u cannot touch till later. I struggle with thoughts that any withdrawals from this should be treated as 'income'. Just the same as I do not consider capital withdrawals from my CBA everyday account, that I deposited 5 years ago, should be treated as income. My super was already treated as MY income years ago when deposited - and taxed as such.
2. Neg gear is not just for rental houses for individuals. Expand ur thoughts to all income loss making activities for both individuals and companies when thinking of this. This will change more than peeps buying rental houses.
3. 'double tax on company stuff'. What about franking credits distributed by trusts - should peeps get an applicable refund on these? (a trust is not an entity but just a relationship). Hmmmmmm.
complicated, yes.

 

[SirRumpole]

1. super imo is more like 10% of your wage being put in a 'bank account' that u cannot touch till later. I struggle with thoughts that any withdrawals from this should be treated as 'income'. Just the same as I do not consider capital withdrawals from my CBA everyday account, that I deposited 5 years ago, should be treated as income. It was already treated as MY income years ago when deposited - and taxed as such.

You pay tax on bank interest (income), but not on withdrawal of your savings from a bank. True ?

 

[HelloU]

true, my point exactly as peeps are talking about including super drawdowns as part of income and then paying income tax on it.....that was how I read the posts.

 

[willy1111]

Taking an Account Based Pension from Super sometimes means the pension/income comprises an amount of capital return, the capital portion should not be taxed again.

Eg, $1m super balance, earnings for the year are $20k of bank interest as all funds invested in cash, but the member draws out $50k Account based pension, 30k is withdrawal of capital, $20k is earnings of the fund which I think would be fair to tax earnings or in this case $20k in personal tax return at marginal rates.

 

[HelloU]

Superannuation is income and should be taxed at marginal rates and not have "it's own rules".

did I mis read this (maybe u meant tax on the income being produced whilst capital remains in the fund?) I maintain that the capital held in super has already has been taxed as income years earlier. And thus should be exempt from income tax when drawn down out of the fund.