What Shorten’s Retirement Tax Really Means

Try swallowing this.

Imagine later this year when you lodge your tax return, your accountant tells you the tax office owes you a tax refund because you’ve paid too much tax. And then in the same breath, she tells you you won’t be getting the refund because the ATO has decided to keep it!

That’s what Bill Shorten’s proposed tax changes look like. All superannuants, retirees and low-income earners who own dividend paying shares will be denied the tax refunds they are due. And I’ll prove it to you with one simple line.

The Noise
Tax can make anyone’s head spin, so let’s remove the stuff you don’t need to worry about. If you hear words like tax imputation, imputation credits, or franking credits, just ignore them. They’re just complex names for ‘tax credits’.

It’s a bit like calling white clover, ‘Trifolium Repens’. Trifolium Repens is the scientific name for clover, but why call it that when you can just call it clover? It’s the same with tax credits.

So, what are tax credits? It’s money you’re owed by the ATO because you’ve paid too much tax. Like your personal tax return.

The Lie
Last week, Mr Shorten, announced he would be closing a ‘loop hole’ that was being exploited by the rich. It’s not a loop hole at all, its Government legislation that was passed by both houses nearly twenty years ago.

He described dividend tax credits as “unsustainable tax subsidies that disproportionately favour a fortunate few” and are “unfair and unaffordable”.

This claim by Shorten is disingenuous at best. It doesn’t favour a fortunate few at all. Of course, this is coming from someone who will retire on a big fat Government pension himself, tax free of course.

The Truth
The implementation of tax credits by Peter Costello in 2000 was applauded by the Labor Party. In fact, Labor were so happy when it was introduced they were gushing like teenagers because it was the epitome of socialism.

Meaning, everyone would be treated equally. It doesn’t discriminate the way Mr Shorten spuriously claims.

However, Bill Shorten’s proposed retirement tax does discriminate and it hurts retiree’s and low-income earners the most.

Let me show you why…

The Line
The easiest way to understand the proposed tax changes can be understood with ‘the line’. It works like this:

1. Company dividends are taxed at 30%. Therefore, 30% becomes ‘the line’. (see below)

2. This means, anyone with a marginal tax rate (MTR) greater than 30% sits above the line and anyone with a MTR less than 30% sits below the line. (Below the line is anyone who earns less than $180k pa including superannuants and retirees).

3. If you sit below the line, it means you’re entitled to a tax refund on company dividends because you’ve paid too much tax, just like your personal tax return. However…

4. Under Shorten’s proposed tax changes, he no longer wants to reimburse the group below ‘the line’ even though they’re entitled to a tax refund. In other words, he wants to keep the green and yellow sections normally refunded back to superannuants, retirees and low income earners, for the Government. Therefore…

5. Retirees will be the most disadvantaged group because they have a MTR of zero percent (0%) but will be taxed at 30% on share dividends. For some retirees, this will mean a drop in income between 25-33%.

But it gets worse.

The Stench
The reason this Moowsletter didn’t eventuate last Friday was because some of the stench surrounding Shorten’s tax changes needed to be verified first.

Try this…

The trade union slush funds and labor-aligned campaign groups will be exempt from the proposed tax changes. The most notable exemption is the militant CFMEU which has set-up various entities all of which will be granted tax exemptions by a Shorten Labor Government. This means they will receive the very tax refunds retirees, superannuants and investors will be denied. [1]

Remember also, the trade unions are already tax-exempt entities. Meaning, not one dollar of the hundreds of millions of dollars they raise in revenue each year is taxed. And now on top of this, Shorten wants to grant further tax emptions on share dividends.

Its disgraceful and Bill Shorten has the gall to tell everyone the current system is unfair and favours a fortunate few. The duplicity is breathtaking.

BTW…did you know the industry super funds have paid more than $53m to trade unions over the past decade? [2] Some of that money would have been retiree’s money.

Double Standards
In the past few weeks, union funded ads have started to appear on TV about workers being underpaid by employers. It’s a shame Bill Shorten and the unions don’t have the same level of concern for retiree’s.

Thank you for your time.

Adam

P.s For the Ag Scientists and farmers out there who noticed the salutation of ‘Trifolium Repens’, I know it should be written as trifolium repens, but I didn’t want to confuse things any further. I hope you’re getting some of this rain! 😉

Sources:
[1] The Sun Herald (21.3.18)
[2] The Australian (15.8.17)