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Dividend imputation sparks further reform debate

Tax reform has again been thrown into the spotlight after the Association of Superannuation Funds of Australia warned that abolishing dividend imputation would severely impact retirees and their super savings.

News Mitchell Turner 13 August 2015
— 2 minute read

After releasing research showing the abolition of either dividend imputation or the current system of refundable franking credits would have the greatest negative impact on retirees, superannuation fund members and low to middle-income earners, Pauline Vamos, CEO of ASFA urged that the government seek other avenues of tax reform.

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“Removing or changing dividend imputation may seem like a quick revenue fix for the government now, but it will have negative long-term effects on Australians’ retirement savings," she said.

The AFSA report indicates that during the accumulation and retirement stages, dividend imputation accounts for a 13 per cent increase in retirement income streams, with the proposed abolition subsequently costing the average retiree $4,000 per annum.

The report urges that the government take a long-term view in regards to tax reform, noting the strain that retirees are already under.

“Even with the benefit of dividend imputation, only 35 per cent of Australians are retiring with enough superannuation to live a comfortable lifestyle – we clearly need to be helping Australians to bolster these savings instead,” Ms Vamos added.

Vince Tropiano, tax partner, Grant Thornton Australia, said dividend imputation is just one of many things that must be included in the tax reform discussion.

"Our view is that a number of wide-ranging tax reform measures need to be considered – focussing on one particular item in isolation, without consideration of the wider ranging tax and transfer system as a whole (as well as the individual and commercial ramifications of any changes), will not provide us with the benefits that the Australian economy and general population requires," Mr Tropiano said.

Tony Windle, national head of indirect tax at Grant Thornton, said he believes that re-evaluating the GST would be a preferable path to tax reform, in part due to its large taxpayer base, as well as the ease with which many indirect taxes can be administered.

“GST reform is essential; it is holistic and all encompassing, a more viable means of reform than the current tinkering around the edges that we have seen in recent times on tax,” he said.

Mr Windle notes the current tax landscape, stating that from an international standpoint, many countries are continuing to adopt a GST system or reform an existing one.

“These live introductions show that all economies are seeing the review and imposition of GST as a good thing for their economy,” he stated.

Mr Windle added that Grant Thornton has proposed a GST increase to 15 per cent, as well as a broadening of the tax base, with a greater emphasis on the “middle ground” of input taxed transactions.

“It is important to remember that the GST is just one indirect tax in Australia and that any reform should be looked at in conjunction with other indirect taxes,” he concluded.

Dividend imputation sparks further reform debate
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