Shorten’s tax plan threatens retirees
FAST FACTS
FEDERAL Labor’s proposed changes to dividend tax credits have been hotly criticised, with shareholders and the superannuation sector saying the changes will hit lowerincome retirees hardest and potentially disrupt the share market.
Labor Leader Bill Shorten announced a plan yesterday under which his party would scrap the current arrangement that allows share owners to claim a cash refund for unused dividend imputations.
Dividend imputation is the system under which shareholders receiving share dividends get a tax credit in recognition of tax already paid by the company. Those shareholders can offset the credit against their other income.
But Labor says, if it wins government, it will no longer give cash refunds to people whose taxable income is zero.
The Australian Shareholders’ Association said political tweaking of the tax system was jeopardising the planning of self- funded retirees.
“The potential for ongoing tweaking throws retirement planning into disarray,” ASA chief executive Judith Fox said.
Ms Fox said retirees and future retirees had structured their investments to take into account receipt of dividends from companies that paid tax in Australia, knowing that excess tax paid would be refunded.
She said Labor’s proposed changes would hurt investors who preferred companies that paid high dividends and which had already paid the 30 per cent corporate tax to the Australian Taxation Office.
The Association of Superannuation Funds of Australia said Labor’s proposal would hurt “mum- and- dad investors” through their superannuation and through the shares that they owned outside of the superannuation system.
“It’s critical that we do everything we can to maximise income for retirees,” ASFA chief executive Martin Fahy said.
Dixon Advisory, which provides advice to more than 8000 trustees in self- managed super funds, said the people most likely affected by Labor’s proposed changes were peo- ple on zero tax rates – mostly industry, retail and self- managed superannuation pension accounts. It would also affect low income earners with shares in their own name.
“There are lots of small parcels of shares held by mum- and- dad investors from floats, like IAG, AMP, Telstra and Commonwealth Bank,” Dixon Advisory’s Nerida Cole said.
“The most likely group to be affected will be retirees because they don’t have any other employment income that they can offset the dividend credit against,” she said.
The Tax Institute described Labor’s proposal as a grab for “politically low- hanging fruit” because it could be done with little legislative change, would save $ 11 billion in revenue, and would cause minimal damage to Labor’s constituency.