Plan to close a tax loophole

Disclosure Statement: Durand Financial Services Pty Ltd and its advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. General Advice Warning: The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.

(Australian Associated Press)



* A company earns $100, pays $30 in tax, and pays $70 to shareholders.

* To ensure that profit isn’t taxed twice – once with corporate tax and again on income tax – shareholders get a $30 tax imputation to go with their $70 dividend. This is called dividend imputation.

* Investors can use the imputation to reduce the tax they pay on that dividend.

* But shareholders who pay no tax can also use it to get a cash refund from the government.

* Some investors get $2.5 million in cash from the government each year because they technically pay no tax.

* When John Howard introduced the system in 2000 it cost $550 million a year – now it is above $5 billion a year and growing.

* In 2000/01, the federal budget was billions of dollars in surplus and the economic outlook was strong.

* Today, the budget is in tens of billions of dollar in deficit and the economic outlook is modest, if not still relatively weak.

* Shareholders will still get the tax imputation to reduce their tax liability.

* But a federal Labor government will no longer give cash refunds to people whose taxable income is zero.

* No one will pay additional tax, Labor says.

* This will take it back to the original system introduced by Labor’s Paul Keating, Labor says.

* Treasurer Scott Morrison says it’s “theft”.

* Investors will be taxed twice because they will no longer get a cash payment when their taxable income is zero.

* It will hit low-income earners and pensioners with share portfolios.


Like This

Categories: Tax