Geoff’s Franking Credit Musings
I am consolidating these Facebook posts in one Blog, as it seems, from recent conversations, many of you haven’t seen them and I think they are worth considering.
In March, the Labor party launched its tax proposals should it win power at the next election. One of its main fund-raising proposals was to change the treatment of franking credits for those paying – most of you on allocate/account-based pensions.
As this proposal will have a major impact on many of the clients we advise, I posted these comments:
The Labor party’s proposed changes to the treatment of franking credits are truly scary because it shows that they have completely lost touch with the Australian people. Labor seem to be obsessed that the only people who own Australian shares are millionaires or those who have self-managed superannuation funds. This is NOT TRUE! Almost every Australian owns Australian shares through their superannuation fund so almost every Australian will be adversely affected by these changes.
My belief is that the “millionaires” that the Labor party claim to be targeting will get advice, restructure their portfolios to make sure they still get the franking credit benefit off-set against tax on income from other sources, while “the Battlers” will be the ones who suffer because they rarely have income from sources other than their account-based pensions so pay no tax to off-set.
The clients we have looked at over the last few days will lose 1-1.5% of their returns from their account-based pensions if this policy is implemented. Millionaires? No! Average account balance $350,000 – and other than their house, not much else.
Please do not let Shorten get away with this – remember, as a member of parliament, his pension will, in all likelihood, be unaffected by this change.
Please spread the word as this change will, eventually, affect almost every Australian – not just those who are currently retired and certainly not just the rich as Shorten would have you believe.
Labor then tried to spin the proposals to make them sound a little more palatable.
“Yet again, Labour showing they are missing the point – there is a paragraph buried later in this piece that talks about these savings for pensioners being for those shares held directly. Well, most pensioners don’t hold the shares directly. They hold them through their super fund or their account-based pension, so it looks as if Shorten is continuing with his cash grab from the poor.
I maintain that the rich, who Shorten claims to be targeting, will restructure their portfolios so that they maximise their benefits, not losing a penny. The other side of that is that Shorten’s targeted tax savings will not raise a dollar from the rich – any money raised will be from the poorer end of the population.”
The next attempt by Labor was to say that they would alter the way their new proposals are implemented by overlaying more legislation to make sure that people on full or part Age Pensions will not be impacted – so now they’re targeting those of you who have saved enough so that you aren’t getting any Centrelink benefits – many more of you following the recent changes to the Assets Test.
These changes – if they become legislation – mean that you will lose the tax refund inside you allocated/account-based pension.
“Nothing Bill Shorten or Chris Bowen have said indicates that they will not be changing the rules around tax refunds for franking credits – and as they have demonstrated on a number of occasions they don’t understand the consequences of the changes they have put forward as Labor policy, I stand by my original comments that there will be negative consequences for many, many Australian pensioners. Based on my meetings with our clients, the average cost per family will be about $2,500 per year.”
Comments by Geoff Orr of Brisbane Money Management