Labor leader Bill Shorten’s plan to scrap refundable imputation credits has captured the ire of one financial adviser and accountant, who says the policy would actually hurt lower income Australians.
Yesterday, the Opposition Leader revealed a new policy to abolish the ability for individuals to claim cash refunds on excess imputation credits that had not been applied to offset tax liabilities.
Mr Shorten said the abolition of the benefit – which was introduced by the Howard government following the Keating government’s establishment of the dividend imputation system in 1987 – would result in an additional $5.6 billion to the federal budget bottom line and reduce “unfair revenue leakage” that allegedly disadvantages voters in lower income brackets.
However, speaking to ifa, Michael Pinn, director of Sydney advice boutique Pinn Deavin and a former CPA and CA, said the policy would result in precisely the opposite.
“The policy of dividend imputation is fairly simple,” he said, explaining that shareholders may pay additional tax on dividends or receive a tax refund depending on whether their marginal tax rate is greater or lesser than the company rate.
“By denying the lower income tax rate taxpayer a chance for a refund of the imputation credits, Mr Shorten is actually denying a low income person the tax credit whilst still taking more tax off the higher income taxpayer,” Mr Pinn said.
“Imputation tax credits on dividends actually redistribute wealth to lower income investors and take wealth off higher income investors.
“Mr Shorten either doesn’t understand the practical implications of the policy or does not intend to use it.”
The AIOFP director and self-licensed adviser is not the only financial services industry participant that has opposed the proposal.
The FSC, ASFA and SMSF Association each issued statements arguing that Mr Shorten’s plan would adversely impact Australia’s retirement income system and penalise those who have worked towards becoming non-reliant on government welfare.
Of the mainstream superannuation industry representative groups, only Industry Super Australia (ISA) – whose members maintain close links to the labour movement – has come out in support of the proposal.
ISA chief David Whiteley described the move as sensible and called on the federal government to support the opposition proposal.
“It has been evident for several years that policy changes are needed to modernise the super system,” Mr Whiteley said.
“There is a need to make the system fairer and by reducing reliance on the aged pension, more economically sustainable.”
Commenting on the ISA position, Mr Pinn said these funds support the Labor proposal because “they use tax credits as 'cash'. In the sharing of super fund profits they use imputation credits received to offset any contributions tax payable”.
“The only time it would become an issue for industry funds is if the contributions dropped and they were not able to offset the contributions tax liability against excess imputation credits received,” he said.
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