–Treasury considered dividend imputation policy reform before 2017 budget

March 13, 2018

A white discussion paper on tax reform commissioned by Mr Hockey and completed by Treasury in 2015 found “there are some revenue concerns with the refundability of imputation credits,” indicating the department was receiving lower tax revenues than it expected. 

“It provides a greater incentive for shareholders of closely held companies to delay distributions until a time when individual owners are subject to a relatively low tax rate, to receive a refund of tax paid by the company.” 

The list published by Treasury shows the department’s work on dividend imputation policy continued after Mr Morrison became Treasurer in 2016.

When asked if Treasury had been considering something similar to Labor’s reforms on Tuesday, Mr Morrison said “no,” and the list does not give specific details on the policy options being examined.

Labor, which has not released Parliamentary Budget Office costings of its policy, said it planned on cancelling an average cash refund of $5000 on share dividends from 8 per cent of taxpayers, including 200,000 voters who self-manage their own super funds and 1 per cent of full pensioners. 

Australia is the only country in the world to have refundable full imputation that gives tax credits on the dividends shareholders receive to avoid company profits being taxed twice.

Britain, Germany, France, Italy, Finland, Norway, Singapore and Malaysia have all completely retreated or adopted a partial dividend imputation system since 2000.

The Leader of the Opposition, Bill Shorten and shadow treasurer Chris Bowen.

The Leader of the Opposition, Bill Shorten and shadow treasurer Chris Bowen.

Photo: Louie Douvis

The majority of employees earn incomes above the tax-free threshold of $18,000 which means they still pay tax after receiving dividends, but up to million Australians who receive little-to-no income outside of share dividends end up receiving a cash refund from the credit they are owed by the Tax Office. 

In 2009, NAB chairman and former Treasury secretary Ken Henry said the government should consider axing the system to help it pay for a company tax cut from 30¢ to 19¢ in the dollar as part of his Henry review.

Labor’s $59 billion budget boost from the change would cover off the $35.6 billion remaining of the Turnbull government’s $65 billion company tax cut from 30 to 25 per cent.

But the opposition has yet to clarify its final position on company tax, including whether it would unwind any of the $29 billion tax cuts already passed for businesses earning up to $50 million a year if it wins next year’s election.

The head of the Australian tax centre at KPMG, Grant Wardell-Johnson, called for Labor to follow through on some of the Henry review’s recommendations and spend some of the extra income from wealthier retirees on company tax cuts. 

“Broadly it is a fairer system, we are moving in the right direction,” he said. 

Eryk Bagshaw

Eryk Bagshaw is an economics reporter for the Sydney Morning Herald and The Age, based in Parliament House

Peter Martin

Peter Martin is the economics editor for The Age, based at Parliament House

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