As Bill Shorten wages war on shareholder tax credits, small businesses urged to employ big-picture planning

Bill Shorten

Leader of the Opposition Bill Shorten delivers the 2017-18 Federal Budget reply speech on Thursday, May 11, 2017. Source: AAP/Mick Tsikas.

Opposition leader Bill Shorten will today unveil plans to wind back cash refunds associated with dividend imputation credits, but while this policy could hit some small businesses planning for retirement, one accounting expert says it’s important SME owners take a big picture view of their financial planning regardless of individual tax policies.

On Twitter this morning, Shorten told followers “we are closing down unaffordable tax concessions to pay for schools, hospitals and lower taxes for working Australians”.

In a speech in Sydney today, Shorten is expected to announce a Labor policy to stop individual taxpayers from getting a cash refund if the tax “imputation credits” they receive from dividends earned exceed the overall amount of tax they owe.

Under the current system, taxpayers who own shares in companies receive dividend imputations, or credits, to account for the fact that company profits are already taxed before shareholders receive a portion of these profits as dividends.

However, changes by the Howard government to this policy in 2000 allowed shareholders to receive a tax refund from the Australian Tax Office if their credits exceed the amount they actually owe in tax. This can deliver advantages to those with self-managed superannuation funds in particular.

Labor’s plan will curb the ability of individuals to claim these refund payments. The party argues superannuation funds will claim close to $60 billion in excess imputation tax credits over the next decade, and its policy will look to limit this and prevent the cash refunds from flowing into self-managed super funds.

The policy follows Labor’s commitment to put limits on the tax benefits of family trusts, by introducing new levels of taxation for distributions made through these kind of company arrangements.

The plan has been met with fierce criticism from the government, with treasurer Scott Morrison telling Sky News this morning the plan is akin to “stealing” from retirees.

“It is unfair to steal someone’s tax refund, I wouldn’t do it on your tax refund as a normal income tax payer and I’m not going to do it for pensioners and retirees,” Morrison said.

Labor’s proposed tax policies could affect small business owners who are planning their affairs as they head towards a business exit or retirement, says founder of Perigee Advisers, Lisa Greig, but that doesn’t mean people should panic.

She says that while small business owners might seek to take advantage of policies like excess imputation credits or trust structures, they have to understand that the specifics of tax policy can shift over time.

My take always is that you’ve got to play the system to get the advantage, but realise that you are playing by their rules, not yours,” she says. 

“With any arrangement, realise that the rules [in place] are only really applying to that point in time.”

Get exit planning early

Greig says that given the two major political parties are both keen to find additional revenue across the board, it’s not surprising that reviews to tax advantages are on the table for discussion.

However, she believes it is “really hard” for a small business owner to plan their exit strategy or superannuation based on future predictions about what changes politicians might make to the tax landscape.

A better approach is to sit down and evaluate how your business and assets fit into the rules right now — and then look into the future to ask what the best case scenario for your future might be.

“Think about your exit as the starting point, and ask yourself, ‘what do I want to do next [after exiting my business]?’,” Greig suggests.

It’s more important that business owners work out what they will need to live on in retirement overall, rather than trying to play the system to get benefits that might change down the line, like tax imputation credits.

She suggests “asking what makes you sleep at night”, and then “taking advantage of any policies that are available today”.

The trick, however, is to not count on any individual policy that could benefit you, whether it relates to dividends, superannuation or another policy area.

“There’s a lot of bandaid solutions [to tax reform] coming through at the moment, and there’s no need to panic. Tax reform takes a long time in this country,” she says.

NOW READ: Bill Shorten’s family trust tax plan unveiled: What it could mean for small businesses


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Tim Wilshire
Tim Wilshire
4 years ago

This policy announcement is not fair on self returned retirees. There refunds they would now currently get would be effectively abolished. This directly affects 50% of people over the age of 60. 50% have some type of share investment and now their return on investment immediately is lowered if this were to come in. It isn’t fair in my opinion that someone on $87,000 would be better off on their ROI from investing in blue chip shares than a retiree with taxable income $30,000 per year. There are so many examples where this policy is terrible.

Another example (real client example) –

MV works as a sole director and share holder of his company CC. He has worked hard over the last 15 years and his company has paid $100,000 in tax or around $10,000 a year the last few years whilst paying himself no wage – as he has been building up his working capital in his company. In 2017 he pays himself a cash dividend of $36,250. Grossed up with the new company tax rate his taxable income is $50,000 with $13,750 in franking credits. In 2017 he is entitled to a refund of $4,750. Under shorten he gets a big fat fuck you you get nothing back. Instead of paying $9000 in tax on the $50,000 – he has paid $13,750. To me that’s not fair

Rohan Baker
Rohan Baker
4 years ago
Reply to  Tim Wilshire

Agreed. You’re now paying tax on paying tax. Welcome to the revolution.


Rohan Baker
Rohan Baker
4 years ago

Welcome to the revolution. Everyone now works for the state.


Rohan Baker
Rohan Baker
4 years ago

Welcome to the revolution. Everyone now works for the state.


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