In the lead up to the 2019 Federal election, we will seek to provide you with as much information about the fiscal policies of both the Liberal party and the Labor party to ensure you can make a fully informed decision on election day. We will not provide any judgements or comments in relation to the proposed policies.
Labor’s Franking Credit Policy
What is the policy?
Franking credits (or imputation credits) are credits that accompany franked dividends. They represent the income tax that the company has already paid on the underlying profit supporting the dividend. Currently, taxpayers receive a credit against their tax bill for the franking credits received from franked dividends. Taxpayers can receive a cash refund of the franking credits if these credits exceed their tax bill.
The Labor party is seeking to stop the cash refund for the excess franking credits. The franking credits can be used to reduce an existing tax liability, but cannot be used to generate a cash refund. Excess and unused franking credits will be lost.
Exemptions
Labor’s policy will only apply to individuals and superannuation funds (and therefore will not apply to income tax exempt charities and not-for-profit institutions with deductible gift recipient status).
The policy also will not apply to taxpayers who are receiving an Australian Government pension or allowance. This includes individuals receiving Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance.
The policy will also not apply to self-managed superannuation funds with at least one recipient of an Australian Government pension or allowance as at 28 March 2018.
When will the policy start?
The proposed start date of the policy is 1 July 2019.
Who is most affected?
Labor’s proposed Franking Credit Policy will impact on any taxpayers that are currently receiving a tax refund that is based on franking credits received on dividends (so superannuation funds that have an investment in Australian shares).
Most significantly, superannuation funds will be impacted where at least one of the members is in pension phase (as earnings on pension income is tax-free). If all members of a superannuation fund are in pension phase, the fund will not be paying any income tax on its earnings. Consequently, the fund will presently be receiving a full cash refund of any franking credits attached to dividends.
As noted above, however, the policy will not apply to self-managed superannuation funds where at least one member is in receipt of an Australian Government Pension or Allowance.
Individuals on low taxable incomes will also be affected where they receive a refund from franking credits. This may, for example, impact on self-funded retirees where they have investments in Australian shares in their individual name.
In a press release on 21 January 2019, Josh Frydenberg MP (current Treasurer and member of the Liberal Party) argued that more than 900,000 individuals, 200,000 self-managed superannuation funds and 2000 super funds will be affected by this policy.
More information
You can access Chris Bowen MP’s statement regarding Labor’s franking credit policy here.
Important points to note
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Implementation of the above policy would require Labor to win the 2019 election;
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Implementation of the above policy would require Labor to have the relevant legislation passed through the upper and lower houses of Parliament;
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The final legislation may differ to the above policy after a period of consultation with relevant community stakeholders.
What should you do if you’re concerned?
If you are concerned about your current tax or financial strategy as a result of the above proposed policy, we recommend you call us as soon as possible on (07) 56656469.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent,
Jeanette has over 20 years experience as an accountant in public practice. She is a Chartered Accountant, registered tax agent and accredited SMSF Association advisor. When she is not helping business owners grow their empires, you will likely find her out running on the trails or at the gym. Book in to see Jeanette today.
