What does Bill Shorten’s plan for franking credits mean for you?
On 13 March 2018, the Opposition Leader (Bill Shorten) and Shadow Treasurer (Chris Bowen) announced that (if elected) from 1 July 2019, a Labor government would implement a change to remove cash refunds for excess dividend franking credits.
Currently, the dividend imputation system (introduced by Paul Keating to eliminate double taxation on dividends from company profits and concession created by John Howard to receive a cash refund) operates so that where taxpayer’s franking credits exceed the tax liability for the year, the taxpayer is entitled to a cash refund for the excess credits.
Australia is the only OECD country with a fully refundable dividend imputation credit system and the concession has grown rapidly costing the budget more than $5 billion dollars a year. Besides the individuals, self managed super funds are a major beneficiary of this practice.
The policy will apply from 1 July 2019 if the Labor party wins and this means, it will only affect future earnings and franked dividends that start flowing in following financial year. While there will be no longer a cash refund, there will be no additional tax to pay.
Removing the refundable franking credits is just one of a number of significant changes that a Shorten Labor government would make to the Australian tax system, if elected. It is important that taxpayers (and advisors) are across these proposed changes and consider what steps can be put in place, now (if any) to minimise the impact of these changes.