Labor announced today a proposal to abolish cash refunds for excess dividend imputation credits. The SMSF Association has today warned that the Labor policy will cut about $5,000 of income from the median SMSF retiree earning about $50,000 a year in pension income. It also warns the proposed shake-up would affect more than one million Australians by changing rules that have been in place for nearly two decades.
Yet again, the self funded Retiree is being penalised for having their financial affairs in order. Australia’s dividend imputation system is an extraordinarily fair and efficient means of taxing company profits. The effect of dividend imputation is that gross profits are taxed in one of three streams depending on the nature of the RECIPIENT.
Profits retained by the company are taxed at one simple rate - 30%. Profits distributed to non-residents are also taxed at the 30% rate. The remainder - being profits distributed to Australian residents IS EFFECTIVELY TAXED AT THE PARTICULAR CIRCUMSTANCES OF THE RECIPIENT. This strikes me as exceedingly fair - the effective tax rate would range between 0% and close to 50% and is solely dependent on the treatment otherwise accorded to that taxpayer under tax laws. Labor's proposal turns all of this on its head - those persons / entities with a LOW LEVEL of other taxable income would end up paying a higher effective rate on their share of gross company profits than persons or entities with a higher level of other income - seems absurd to me!
I have attached an informative piece on this latest development - taken from The Australian and written by Robert Gottliebsen.