Date posted: 14/03/2018

ALP Blows Up Full Imputation Credit Refunds

As has been well telegraphed, the ALP has announced its plan to remove the full refund of imputation credits for individual taxpayers and super funds. This returns this policy to the original Hawke/Keating design.

In brief

  • ALP returns imputation credit refund rule to original Keating design
  • Review of ATO SMSF data
  • What does this change mean?

I have lost count of the number of times I have seen someone erroneously say these credits provide a tax refund when we all know they’re a device to tax distributed company profits at the ultimate beneficiary’s tax rate.

The ATO’s SMSF stats

It’s worthwhile looking at some ATO numbers.

The ATO’s 2014/15 tax statistics show that of the 480,000 SMSFs that lodged returns about 230,900 had exempt current pension income of about $21b.  Total gross income for this year was $32b.

Now some of these funds would have been paying transition to retirement pensions which from 1 July 2017 became subject to 15% tax in the fund.

In that year about 215,000 SMSFs earned franked dividends of about $5b or an average of about $23,000 for each fund. How many of these were funds solely paying pensions is unknown and the overall wealth of these funds is also unpublished

Now let’s compare this with the 2004/05 year.

In that year just under 286,700 SMSFs submitted returns.  176,000 earned franking credits of $2.2b or an average of $13,000 for each fund.

In those days there were only about 34,000 SMSFs paying pensions and they had about $2.4b of income.

So the story from the ATO stats is clear

The number of SMSFs paying pensions have grown very strongly over the last 10 years but the same cannot be said for SMSFs receiving franked dividends.  The claim that imputation credits have been growing unsustainably in SMSFs does not appear to be accurate.

In fact the number of SMSFs receiving franked dividends has been falling for the last 3 years and the dollar value of dividends paid has been falling for the last 4 years.

Two final important points

  • If this policy is implemented then the long march back to the pre-Howard years retirement system seems to be gathering some speed.  We’ve had RBLs reintroduced in the form of the Transfer Balance Cap, the adjustments to income and assets testing for the aged pension and now this policy.  Will the removal or severe scaling back of small business CGT concessions be the next cab off the rank?
  • Those who thought the Coalition’s 2017 changes were the final effective increase in superannuation taxes may now be realising that they were mistaken.

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