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Franking Credit refunds - a double dose of unfairness

Baby boomers with their life savings in Australia shares won't be the only investors worse off under Labor's policy to abolish the franking credit refund policy, so will young people especially FIFO workers who lose their jobs and don't qualify for Newstart.

Many young people take advice and save money in shares, especially WA FIFO workers.  Investing in Australian shares is a favourite because shares pay an income twice a year and can be reinvested to purchase more shares. 

Under Labor's proposal, a FIFO worker can claim back the franking credit refund, but not if they are unemployed and have no taxable income.  For an unemployed worker with savings in shares it's a double dose of unfairness.  No support income because they don't qualify for Newstart due to savings in shares, and no franking credit refund because they don't pay tax when unemployed.

Baby boomers on the other hand will be looking to financial planners to arrange their investments so they can qualify for at least $1 of Age Pension and be eligible to claim franking credit refunds as well.  If Labor wins, Baby boomers will be better off with advice from a good financial planner but young people will be disadvantaged because of the "ageist superannuation system" that exists in Australia.

To assume that tax paid by companies is refunded as franking credits is a misleading understanding of the franking credit system. When a company makes a profit, it's taxed at a flat rate of 30% and paid to the ATO.  A company can choose to pay a dividend or not to its shareholders in any year.  Not all profits are paid to shareholders.

Australian companies like A2 Milk (A2M.asx), Bellamy Aust (BAL.asx) and Bingo Ind (BIN.asx) make millions of dollars in profits, pay tax, but don't pay a dividend.

It's a matter of fairness to investors.  Why should one type of investor receive income from their investment untaxed and another investor taxed at source?

Consider these three options for a FIFO worker with $100,000 savings to invest:

1.    Term deposit pays interest $2,000 each year. The interest is not taxed at source by the bank with a tax file number provided.

2.    Rental Property in a regional town pays rent $2,000 each year. The rent is not taxed at source.

3.    Wesfarmers/CBA/RIO declares a dividend of $2,000. All companies deduct 30% tax at source of $600 and pays $1,400.  The unemployed FIFO worker is worse off by $600.

Where's the fairness in taxation for these three investment examples.  Why should one investment be taxed at source and others are not?  These are the issues that need addressing, not favouring one type of investor over another.

The local economy will be worse off because stay at home Mum and Dad shareholders will have less money to spend when their Franking Credit refunds are abolished.  Most investors received their refunds in December each year, ready to spend at Christmas time.

Abolishing Franking Credit refunds will disadvantage investors without recognising the risks of not receiving a dividend or losing money on the stock market or in a private company.  More Australian companies will fall into the hands of foreign ownership without local support.

This policy to abolish Franking Credit refunds to some shareholders and not others is flawed and detrimental to Australian small business, investors and to the local economy.

Julie Matheson, BA (UWA), Dip FP (Deakin), CFP (FPA)

Senate Candidate and Convenor for the WESTERN AUSTRALIA PARTY

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