Treasury paper favours overseas investors over retirees

The removal of dividend imputation favours wealthy overseas investors over Australian retirees who are dependent on dividend income and reduced tax from imputation credits says Taxpayers Australia Limited (TAL).

“The Tax Discussion Paper paints a bleak picture of the dividend imputation system but understates the positives,” says Reece Agland, Head of Superannuation at TAL.

“In an environment of low interest rates, investors – particularly self-funded retirees – have turned to Australian shares that offer good income from dividends and franking credits that may be refunded in a SMSF.  Remove dividend imputations and two things will happen.  Some Australian companies will reduce the return to investors and the incomes of retirees will fall.”

The Tax Discussion Paper admits that “…imputation reduces the bias that exists…towards companies retaining profits…” and “the imputation system also has integrity benefits”.

The main rationale for getting rid of the imputation system according to the Treasury paper is the distortion effect it has on non-resident shareholders.

“Why the impact on non-resident investors is considered a higher priority than the impact on self-funded retirees is hard to fathom,” Agland says.  “The best way to reduce the negative impact for foreign investors would be to reduce the corporate tax rate, which will have the impact of reducing the benefit of imputation credits without getting rid of them altogether.”

“We hope the government understands the benefits of the imputation system before venturing down the potentially dangerous path of removing it.”