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Retirees Tax

Discussion in 'General Chat' started by Iggy_Pop, Mar 8, 2019.

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  1. sptrawler

    sptrawler

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    Why? if you put money away for upto 50 years, you expect the taxation to be the same when you get there as it was when you locked the money away.
    It is somewhat like saying, the proposed negative gearing changes, will apply to properties bought in the past.
    Those people bought those properties, on a business plan, which was formulated by the tax laws pertaining at the time.
    If all of a sudden the government changed it, so that they no longer could claim that tax incentive, they may in go broke. So was it ill advised, or stupid, or was it the Government changing the conditions of the contract?
    That is why the proposed changes are being grandfathered, for existing investors, as it does in fact change the conditions under which the contract was written.
    How is it not similar to the retiree who has invested, to become non reliant on a public pension, then having the terms by which they earn that income changed by the stroke of a pen.
    I can understand those who aren't effected not giving a $hit, but for them to rant and rave that it is right, IMO is very wrong.
    It just shows that the general public, don't mind what the Government does, as long as it doesn't affect them.
    The problem is, it only leaves death duties and PPR tax left to be enacted, to put the middle class right in their box.
    But maybe they deserve it. Who knows, time will tell.
     
    Last edited: Mar 9, 2019
  2. sptrawler

    sptrawler

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    Well if you look at it from that angle, why should those in a retail or industry fund get the franking credit? Shouldn't the amount those on a fund pension, have their payout reduced by a reflective amount, to make it a level playing field?
    Or is that just another, of those funny self righteous looking after them and their mates loopholes, that politicians manage to put in?
     
  3. IFocus

    IFocus You are arguing with a Galah

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    Australian dividend imputation system was brought in by Hawk / Keating to stop double taxation SFA to do with tax rates.

    Howard / Costello ( a couple of mugs who got lucky (Keating)) changed it 2000 /2001 to include a rebate even if no tax paid.

    Remember they created the tax defect black hole i.e. give everyone free money in a boom to get re-elected.

    Note ......there is no where any where else in the entire universe that has such a system.

    If you are in a tax vehicle that pays no tax then expect a rebate that's mean for double taxation where in your case doesn't exist.........

    I understand everyone getting upset at having free money stopped.

    Note 2 if the top end paid tax this wouldn't be necessary they don't so you miss out.



    From Wiki
    "
    Effective elimination of company tax and thus incentives[edit]
    To a large extent, dividend imputation makes company tax irrelevant. This is because every dollar that a company pays in company tax can be claimed by the shareholder as franking credit, with no net revenue flowing to the government. (There are exceptions which include profits retained by the company that are never paid as dividends, and payments to international investors.)

    When gross company tax is reported by Treasury, it is unclear whether the number generally includes the effect of the corresponding franking credits.

    One effect is that this has reduced the effectiveness of tax incentives for corporations. If a corporation was given a tax break then its incomes thus released from taxation would not generate franking credits precisely because no tax was paid. In turn, this meant that the shareholders received fewer credits along with their dividends, meaning in turn that they had to pay more tax.

    The net result is that each tax break a corporation itself got was countered by a matching increase in the tax burden of shareholders, leaving shareholders in exactly the same position had no tax break been received by the corporation. Thus, to the extent that corporate directors acted so as to increase shareholder wealth, tax incentives would not influence corporate behaviour."
     
  4. Smurf1976

    Smurf1976

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    Tax vehicle? No tax?

    I am more than happy to pay Income Tax as per the appropriate scale and if Labor believes that to be a problem then I have no objection in principle to that being changed for all taxpayers of that income level. :2twocents
     
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  5. sptrawler

    sptrawler

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    If you were going to pull out that chestnut, you would be looking at silly Billy's pension entitlements. lol
    Like others have said, cherry picking small groups, to apply different tax regiments isn't the correct way to go about it.
    It will be another Labor stuff up, just wait and see.
    Already a SMSF retired couple need well over $1m, to earn the equivalent of the the pension + perks and $350k, that is unsustainable.
    By the same reasoning, why grandfather rules for negative gearing and CGT on existing properties, if it isn't doing what it was meant to do and supply new housing. Why not make it as per the new rules?
    Those people are obviously getting 'free money' as you call it.
     
    Last edited: Mar 9, 2019
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  6. moXJO

    moXJO menace to society

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    It was never the governments money. It ain't a handout.
     
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  7. bellenuit

    bellenuit

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    I can see it from both sides.

    The corporate tax rate in Australia is 30% (ignoring SMEs), so one would expect 30% of corporate profits to be paid in tax. It is a corporate tax not a personal tax, so if one's personal marginal rate is less than 30%, then there should be no refund. If above 30%, the excess is refunded to the individual. That means 30% of company profits goes to the government as tax.

    If those on a marginal tax rate of less than 30% get refunded, then the corporate tax take will not be 30% of profits but something less. The lower the marginal rate of the recipients, the lower the overall tax taken from corporate profits when the refunds are deducted.

    Take an extreme case. A person with no other income owns a company that has made $18,000 in profits. The company pays $5,400 in tax (assume 30% rate) and pays the remainder as a fully franked dividend of $12,600 to its owner as a dividend.

    With the existing system, the individual will have a grossed up income of $18,000, meaning $0 tax is payable by him, and will thus receive a rebate of $5,400. So even though the individual is a separate legal entity to the company, the government has effectively received no tax on that company's profits.

    From the other point of view, if that same individual ran the same business unincorporated and earned $18,000 for the year, then obviously no corporate tax has been paid (as there is no company involved) and no income tax is paid as he is under the minimum threshold.

    Obviously if the government wants more taxes paid, they will opt for Shorten's proposed solution.
     
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  8. Smurf1976

    Smurf1976

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    As a concept that doesn't seem unreasonable. If we're going to tax corporate profits then tax corporate profits, no exemptions.

    That's the bit I take issue with.

    On what basis is it rational to refund a tax on corporate profits to those with higher income levels?

    We do not exempt those with a marginal Income Tax rate in excess of 10% from GST.

    We do not exempt those with a marginal Income Tax rate above 33% from Luxury Car Tax should they choose to purchase such a vehicle.

    We do not exempt those on the top marginal Income Tax rate, 45%, from petrol excise which is approximately the same rate in % terms (petrol tax is a set amount, not a %, but it's about 45% in practice at current fuel prices and yes 10% GST does apply on top of that excise amount).

    And so on.

    So what is the grounds for allowing an exemption from Company Tax for higher income earners but not allowing the same exemption from the same tax for lower income earners?

    What, exactly, is so bad about someone being self-funded through ownership of a specific type of shares, companies paying franked dividends, that warrants a higher rate of tax than paid by any other group on the same level of income? :2twocents
     
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  9. Zaxon

    Zaxon The voice of reason

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    There's a simple fix to all of this. Either

    A) Dividends are treated as an "expense" to the company, are taken out prior to earnings, and therefore aren't subject to company tax. This is how employee wages work. Dividends could work the same way. The tax is left up to the receiving individual to pay. Profits retained by the company can be taxed. This is how trusts work.

    OR

    B) Dividends are treated as a profit share, are taxed at the corporate rate prior to distribution (what we have now), but the receiving individual only declares in their tax return the actual money they receive, not the grossed up amount of the tax the company pays (what we don't have now).
     
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  10. willy1111

    willy1111

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    A. Would have the same impact as the current system so why bother.

    B. Would result in more tax, so not fair either. Imagine a Company earns $1, company pays $0.30 tax and $0.70 out as a dividend. On the top tax bracket of 47% the individual would pay a further $.33 in tax. Thus $1 of profit would be taxed $0.63...63% tax is a very high rate of tax!
     
  11. willy1111

    willy1111

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    And if all the Companies on the ASX change their structure from a Company to a Unit Trust...this tax proposal will raise $0.

    Which is why I suggest if they have a problem with too many people paying $0 tax, the tax on earnings of Super in pension mode needs to be revisited.
     
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  12. Zaxon

    Zaxon The voice of reason

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    Correct. But there are people on this forum that argue that the government shouldn't give people "free money", that returning franking credits to low wage earners is a type of welfare. I disagree.

    So if we treated dividends like wages, so an expense prior to tax, that eliminates the need for refunds. Hence, it eliminates that whole argument. It would be very clear to everyone that what Labor is proposing is to tax low wage earners 30% right from the first dollar.

    Correct. But option B is exactly what Labor is planning on doing to low income earners. I don't agree with it, but if you're going to insist that the company pays their tax before you receive your dividend, then it needs to work the same for all tax brackets.
     
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  13. moXJO

    moXJO menace to society

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    Its a "tax grab" dressed up as "stopping welfare", nothing more.
    This isn't the only place that will be getting milked.
     
  14. IFocus

    IFocus You are arguing with a Galah

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    Which part of this did everyone miss?

    "Australian dividend imputation system was brought in by Hawk / Keating to stop double taxation "

    If you are over 60 in pension phase paying no tax how can you expect to claim a rebate based on the above?

    PS thanks to Bellenuit for that explanation.
     
  15. Humid

    Humid

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    Those who benefit from the system claim that their investment portfolios have been built over time around the existing system, and that your average mum-and-dad SMSFs will suffer. That’s the argument they’re really pushing: that not every beneficiary is wealthy.

    That argument doesn’t really hold up – according to the Parliamentary Budget Office, more than 50% of all cash refunds go to people with SMSF balances over $2.4 million.
     
  16. IFocus

    IFocus You are arguing with a Galah

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    My understanding is that its about tax not income if you pay tax you get a refund if you don't pay tax you don't.

    If you don't pay tax and you get a refund then that's welfare which I am happy to accept :):):D
     
  17. sptrawler

    sptrawler

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    Because as has already been said, the super system is set up so that when the person attains pension age, their earnings and pension is tax free.
    Not for profit companies and religious institutions, I believe are treated as tax free entities, therefore from my understanding they will receive the franking credits from their investments.
    If the Government wants to change the interpretation of the super pension, they should change it in a way that is progressive, not hit it with a hammer. IMO
    The way they are doing it, those who as you say get "free money", still get the franking credit.
    Those who do not qualify, for 'free money', don't get it.
    What really annoys me, is the way that everyone talking up the decision by a political party, to take 30% of a persons income.
    If the Governments said, they were going to increase income tax on workers by 30%, or that self funded people who rent out properties were going to have 30% taken of their rental return, then maybe the white noise would be different.
    To self fund with $1m, without the franking credit and doing it in a 'safe' manner, will return around $40k (50% in term deposit, 50% in shares)
    That is similar to the outcome, of being on the age pension, why would you put away $1m in the first place?
    Like I said months ago at the beginning of this debate, bring in progressive tax scales on super pensions.
    To make super a pointless excercise, is only going to disenfranchise the workers and will end up backfiring in Labors face.
    Only my thoughts, but I will be very interested to see how the personal contributions into super, has been affected.
     
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  18. moXJO

    moXJO menace to society

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    Someone earning $50000 putting away roughly $5000 a year over 45 years at 8% will have roughly $2.2 million won't they?

    Hardly a rich person. They then have to make it last.
     
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  19. willy1111

    willy1111

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    The franking credit is just another name for tax withheld on the Shareholders behalf, hence they have tax withheld from their income (dividend) and are due a refund if the amount with held is more than their tax liability when they do their annual tax return.

    When an employer with holds tax from an employees wage before paying them (called PAYG) - has the employee paid tax or had tax with held from their income? Does the employee receive a tax refund if they have had more tax with held than what their tax liability is when they do their annual tax return? When the employee receives a tax refund at tax time because the tax with held through the year is less than their tax liability do we call this a rort? Do we call this welfare?

    No . . . it is about everyone paying their fair share of tax as per the progressive marginal tax rates we have. The only distortion to this is the 0% tax rate on earnings in Super in Pension mode . . . but these people have saved hard and sacrificed over the years to build these funds . . . and they are not being taken out of the government coffers like the age pensions.
     
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  20. Smurf1976

    Smurf1976

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    I am specifically referring to investments not in any form of superannuation.
     
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