Dividend imputations

The dividend imputation or franking scheme was originally introduced by the Hawke Government to allow companies to pass on credits for company tax paid to shareholders, thereby stopping the investor from paying tax on the company profits again. However, the credits went unused if the investor paid no tax or their tax liability was less than the franking credits.

Under Howard, the scheme was amended so that franking credits in excess of the investor’s tax liability were now paid out as a cash refund, on top of this the Howard administration made superannuation pension payments tax-free. This led to a surge in cash refunds being paid and has created a situation that was never intended by the original legislation. Almost all of these cash refunds go to the wealthiest ten percent of Australians.

It is important to note how much these cash refunds are costing Australia each year and to understand why Labor is taking these steps around dividend imputations to save the money required to spend on projects and policies which benefit all Australians. When Mr. Howard made the changes to the scheme it was estimated to cost the budget $550 million per year, cash refunds will soon cost more than $8 billion each year. Reining in this cost is part of a comprehensive Labor plan to create a fair and effective tax system which allows us to return the budget to surplus, increase funding for our health system, create a world-class education sector, guarantee long-term funding for the NDIS, provide quality and accessible aged care and provide infrastructure for a modern Australia.

I understand that returning the scheme to its original and intended form means that you will lose income but it does not mean you will be taxed. Just to be perfectly clear, you will not have to pay the ATO anything and should your tax liability be higher than your imputation credits you are still within your rights to claim them. Labor understands there will be some frustration about franking credit changes from those who have already planned for retirement but it is important to note that these changes are prospective only, that is they will only apply to dividends from 2019 onward.