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Exemptions confirmed for Labor’s tax plan

Exemptions confirmed for Labor’s tax plan

The federal opposition has backpedalled on its reform of excess dividend imputation credits, confirming significant carve-outs for older clients. 

Tax&Compliance Katarina Taurian 27 March 2018

As speculated yesterday, pensioners will be exempt from Labor’s plans to end cash refunds for excess dividend imputation credits.

The exemption for pensioners will come in the form of a ‘Pensioner Guarantee’ scheme.

SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes.

However, high-net-worth Australians and SMSF trustees are still a significant focus for Labor in its tax plans.

“Recipients of cash refunds are typically wealthier retirees who aren’t paying income tax. These are people who typically own their own home and also have other tax-free superannuation assets, and don’t pay tax on their superannuation income,” Labor said in documents describing the new carve-out.

“Working Australians typically go to work and pay their PAYG taxes and if they own shares they use imputation credits to offset their personal income tax liabilities. That is, they use imputation credits to pay less tax, but don’t receive a cash refund,” Labor said.

Shadow treasurer Chris Bowen said the policy has been fully costed by the Parliamentary Budget Office, based on the current budget baseline, which includes the effect of the $1.6 million balance transfer cap in superannuation.

The policy has largely not been well received by tax professionals, who immediately called out its broad-ranging impact.

“Mr Shorten is meddling with the successful concept of imputation – that when company dividends are paid they are taxed at the individual’s tax rate with full credit for the tax already paid by the company,” said SISFA managing director Michael Lorimer at the time the policy was announced.

“Under Labor’s plan, anyone in retirement and living on their superannuation savings will now have every dollar of their income from dividends taxed at a rate of at least 30 per cent,” he said.

Despite the headline claims from the Labor party that this policy will effectively close tax loopholes, the Tax Institute sees the measure as a thinly veiled cash grab. If implemented, the policy could raise about $11 billion.

“It is what one could readily describe as the politically low hanging fruit – easily done with minimum legislative change; saves a bundle in revenue and causes relatively minimal damage to Labor’s constituency,” said Tax Institute senior tax counsel Professor Bob Deutsch earlier this month.

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Exemptions confirmed for Labor’s tax plan
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