Initial reactions from tax professionals to Labor’s original proposals have been critical, particularly of the broad-ranging impact of the policy, and its challenge to the long-standing system of imputation. Under the current rules, 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. Under Labor’s proposals, it is to be expected that retirees who are living on their superannuation savings will effectively face a tax rate of at least 30% on each dollar of their dividend income.
Documents released by Labor in respect of the carve out announced today (27 March 2018) indicate Labor’s tax plans will continue to have a significant focus on high-net-worth Australians and SMSF trustees. Labor has identified ‘wealthier retirees who aren’t paying income tax’, who ‘typically own their own home and also have other tax-free superannuation assets’ and who ‘don’t pay tax on their superannuation income’ as typical recipients of cash refunds as a result of imputation credits. These individuals are distinguished from “working Australians’ who ‘typically go to work and pay their PAYG taxes and if they own shares they use imputation credits …to pay less tax, but don’t receive a cash refund’. This apparently, and somewhat conveniently, ignores the fact that wealthier retirees were once such working Australians, and it wasn’t they who set the rules around imputation credits that have benefitted them later in life
Tax Institute senior tax counsel Professor Bob Deutsch has suggested the measure is a thinly veiled cash grab, rather than an effective means of closing tax loopholes, describing the proposal as “… politically low hanging fruit – easily done with minimum legislative change; saves a bundle in revenue and causes relatively minimal damage to Labor’s constituency”.
Perhaps unexpectedly, the latest Newspoll announced a day before the carve out showed Labor’s primary vote has increased and it leads the Coalition on a two-party-preferred basis, 53-47. This is likely to be unsettling for the government given the widespread criticism Labor’s original proposals received. And it is, perhaps, an indication that voters have already made up their minds about the government’s performance in general. This was also the 29th poll to show the Coalition trailing behind Labor on a two-party-preferred basis, since Prime Minister Turnbull ousted his predecessor, Tony Abbott, in a challenge stemming from what was professed to be a need for change following …the 30th poll to show the Coalition led by Mr Abbott trailing Labor on a two-party-preferred basis.