Franking Inquiry: Labor's Policy Violates Principles Of Taxation, Say Retirees

A former employee of the Australian Taxation Office has slammed Labor's proposed changes to refundable franking credits because they offend "against the pillars and basic principles of taxation".

Retiree Bernard Shea, who spent a decade at the ATO over 40 years ago before 25 years as a public accountant and tax agent, said the proposed policy violated the principles of vertical and horizontal equity, "that is, it treats taxpayers in the same circumstances differently".

Speaking to a parliamentary committee on NSW's South Coast, Mr Shea said the policy discriminated against self managed super funds, in favour of "large industry and retail funds".

Self-funded retirees would no longer receive cash refunds from franked dividends under the proposed policy. However, retirees in pooled super funds would still receive some benefit, as many members in these funds pay tax and thus as a group could make use of franking credits.

Mr Shea said he did receive some money from franking credits but it was almost negligible and he was more opposed to Labor's proposed policy on a philosophical basis than because he had a lot to lose.

The vast majority of public submissions to the refundable franking credits inquiry that appeared in the coastal town of Merimbula on Monday were from retirees opposed to the changes.

One retiree, Jon Gaul, said he would lose $6,000 a year if the Labor government was elected and the policy became legislation. Mr Gall called for the policy to be grandfathered with a fixed annual sum cap, to protect those retirees who had factored franking credits into their retirement plan.

"This policy violates the core, fair go, taxation principle that people having the same assets and income should be treated the same," he told the committee at the Merimbula RSL.

Mr Gaul has performed consultancy work for the Liberal party and is the local branch president.

Retired IT worker Chris Sparks said he was a swinging voter and the proposed policy was enough for him to vote for the Liberal Party at the next election, despite voting for Labor in 2016.

Labor holds firm

Appearing on 2GB on Monday at the same time as the hearing, former prime minister Tony Abbott said shadow treasurer Chris Bowen was wrong to tell opponents of the change they were "perfectly entitled" to vote against Labor.

"It was an extraordinarily patronising attitude to older people and people who have put money aside because they don't want to be a burden to the community," he said.

Mr Bowen firmly ruled out making changes to the policy on Friday last week. He said "the policy that we've developed is the one that we'll take to the election and will seek the support of the Australian people for, we will continue to argue for it."

The Institute of Public Accountants said Labor's policy was unfair.

"The refunding of imputation credit policy has been in operation for close to two decades and removing it in a piecemeal way without dealing with the consequences is fraught with danger," chief executive officer Andrew Conway said.

"We do not support any changes in the removal of refundable franking credits unless it is associated with more holistic tax changes to the treatment of savings more broadly. A survey of our members also shows that 95 per cent of respondents do not support any change."

The committee will move to Sydney next, with two public hearings on Friday, one in Bondi and one in Chatswood.


By Tim Boyd

Financial Review

4 February 2019

#FrankingCredits #FrankingPolicy #SelfManagedSuperFund #SMSF #Retirement #Retiree

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