Back in 1987 the Hawke-Keating Labor government introduced the franking credit system which was designed to stop double taxing of corporate profits. Prior to 1987 the Australian Tax Office (ATO) would tax the company on the profit’s they made and then when these profit’s were paid to their shareholder’s in the form of dividends. The ATO would then charge them income tax, hence the double taxation.
In 2000 the Howard-Costello Liberal government took it a step further and allowed shareholder’s with excess franking credits to get them back as cash if they didn’t have any additional income tax to offset them against.
For those that are unfamiliar with how Franking Credits work take a look at my article ‘What is all the fuss about dividends’.
Over the years Self Managed Super Fund’s (SMSF’s) have benefited and many actually get a nice cash refund of franking credits from the ATO each year. The current opposition wants to now hit shareholder’s and the SMSF armies franking credit refunds. If Labor are elected those SMSF’s that are in pension phase and not paying tax will no longer receive cash refunds for their unused franking credits.
SMSF investor’s take risks by investing in the market with the aim of generating income and growing wealth. Franking credit refunds are well deserved and get distributed back to those who have worked hard to save for their retirement.
The main problem is the analysis of the Australian Tax Office and Treasury data by the Self Managed Super Fund Association shows it is those on modest incomes who will be most affected, refuting Labor’s argument that the proposal will only target the wealthiest 10% of SMSFs.
If you don’t want to say goodbye to Franking Credits then think twice before voting Labor.