Franking Credits not sustainable, abolish!
Adam Breguet: Ok, so I’m getting a little sick of the #FrankingCredits debate. I’m a tax accountant and I deal with franking credits all the time, so here’s a few numbers: #auspol
Let’s look at a person who has a “modest” franking credit refund of $20,000. This person will also have a “Franked dividend” of ~$46,600. That’s $46,600 of cash (or potentially reinvestment, more on that later).
Now, the value of these shares (based on a 4% dividend yield, which is the average market yield), would be $1,165,000. Yes, that’s 1 million, 1 hundred and 65 thousand.
So these people are hardly poor, in addition, they likely own their own house (at least) and potentially other assets. They can even liquidate these shares over a number of years and end up paying no tax if they know what they’re doing.
So currently many people’s strategy is to dump all their money in shares, and then reinvest the cash dividend (so an extra $46,000 added to that $1mil in just that year) and then claim the franking credit on their $0 of income for tax purposes.
This is not sustainable tax policy, and frankly, the main benefit of it goes to the wealthy. Labor is right to abolish the cash refund portion of the policy.
Source: https://twitter.com/AdamBreguet/status/1097766880264183808